Tesla (TSLA) -) shares slumped lower in early Thursday trading after the carmaker posted disappointing third quarters earnings and cautioned that its Cybertruck will likely weigh on cash flows over the coming year as it accelerates production of the long-awaited flagship.
In an unusually cautious updated with analysts and investors last night, CEO Elon Musk noted that "stormy' economic conditions, rising interest rates and uncertain demand have clouded the group's near-term outlook, but held to his target of delivering 1.8 million vehicles this year.
Musk wouldn't put a hard figure on Cybertruck deliveries, however, suggesting "we'll end up with roughly 0.25 million Cybertrucks a year" but warning that "the ramp is going to be extremely difficult."
"This is simply normal for – when you've got a product with a lot of new technology or any new – brand-new vehicle program, but especially one that is as different and advanced as the Cybertruck, you will have problems proportionate to how many new things you're trying to solve at scale," Musk told investors late Wednesday.
"So, I just want to emphasize that one. I think this is potentially our best product ever," he added. "And I think it is our best product ever. It is going to require immense work to reach volume production and be cash flow positive at a price that people can afford."
Musk also appeared to back away from the company's stated goal of growing overall deliveries by 50% each year, saying only that "it's not possible to have a compound growth rate of 50% forever or you will exceed the mass of the known universe. But I think we will grow very rapidly, much faster than any other car company on Earth, by far."
The comments added further clouds to a weaker-than-expected third quarter earnings report, which saw adjusted profits fall 37.1% from last year to 66 cents per share, well shy of the Street consensus forecast, even as group revenues rose 9.1% to $23.4 billion.
Adjusted automotive margins were 16.1%, Tesla said, well south of the 18.7% figure recorded over the first quarter and last year's second quarter tally of 23.2% following a series of price cuts in its biggest global markets.
Gross margins were 17.9%, down from 25.1% over the same period last year and the 18.2% figure recorded over the second quarter. Wall Street forecasts hovered between 17.8% and 18.2%.
"Tesla's auto business is a legacy business now. It's penetrated and so affected by overall market forces like interest rates and industry demand as Tesla hinted to in their release and on the call," said Elazar Advisors analyst Chaim Siegel, who carries a 'neutral' rating on Tesla stock.
"That suggests to me that there’s more price cuts to come and further margin risk," he added.
Tesla has been aggressively cutting the price of its flagship Model 3 sedan and Model Y midsize SUV in key markets worldwide including the U.S. and China as part of that aim, in its effort to entice new buyers and fend off increasing competition in the EV space.
Tesla's third quarter deliveries, while the highest on record, missed Wall Street forecasts when they were published in early October, suggesting at least some demand headwinds linked to China's post-Covid sluggishness and looming recession risks in Europe.
The slowing sales will test Tesla's 2023 strategy, outlined earlier this year by Musk, of focusing on market-share growth at the expense of profit.
Tesla will need to deliver around 477,000 new vehicles over the final three months of the year to meet its stated goal of 1.8 million, but CFRA analyst Garrett Nelson suggests the Cybertruck's installed production capacity should "reassure investors concerned about the ramp-up of the highly-anticipated new model."
We also view investor concerns regarding recent gross margin pressures as somewhat overblown, as comps should improve in the next couple of quarters," said Nelson, who carries a 'buy' rating with a $300 price target on the stock. "Tesla should emerge from the UAW strike with an even wider competitive moat and as the industry's biggest winner."
Tesla shares were marked 9% lower in early afternoon trading Thursday to change hands at $221.00 each, a move that leaves the stock with a 22% gain over the past six months.
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