Tesla drops most since 2020 after third consecutive delivery miss

(Bloomberg). Tesla Inc. shares dropped more than 14% following the delivery of fewer electric cars than expected in last quarter, despite offering substantial incentives in its largest markets.

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Monday’s announcement by the company showed that it had delivered 405,278 vehicles in the past three months to customers, a shortfall of the Bloomberg average estimate of 420,760. The total was a Tesla quarterly record, but Tesla still opened two new assembly plants last fiscal year, which fell short of its goal of expanding by 50%.

It’s also the third straight quarter that deliveries have missed estimates. Several analysts cut price targets on the stock Tuesday, resulting in Tesla’s lowest average 12-month stock forecast since October 2021. And JPMorgan Chase & Co. said Tesla might never again reach its multi-year 50% growth sales objective.

“Our base case assumption is that year-on-year growth (while remaining impressive overall) is likely to decline each year from here on out,” analyst Ryan Brinkman, who has the equivalent of a sell rating on the shares, wrote in a research note.

Tesla’s double-digit decline to $105.60 just before 12:00 p.m. in New York — the steepest drop since September 2020 — comes on the heels of a dismal 2022 for the stock. Its shares plunged 37% in December and ended the year with a record-breaking 65% fall.

After Chief Executive Officer Elon Musk predicted an “epic” end to the year, Tesla cut vehicle prices and production in China, then offered $7,500 discounts in the US. Concerns about rising interest rates, inflation and other economic headwinds — plus alarm over Musk’s antics on Twitter, which he now owns — sent Tesla shares plunging 37% in December and 65% last year.

“We believe that Tesla is facing a significant demand problem,” Toni Sacconaghi, a Bernstein analyst who also has the equivalent of a sell rating on the stock, wrote in a report Monday. “We believe Tesla will need to either reduce its growth targets (and run its factories below capacity) or sustain and potentially increase recent price cuts globally, pressuring margins.”

Continue reading: Tesla Stock Had the Worst year Ever. That Doesn’t Make It Cheap

Tesla saw an increase in deliveries of 40% to 1.31 Million last year. This was less than the 50% average annual growth rate it has stated it expected to achieve over many years. Production increased by 47% to 1.37million

The company produced 439 701 vehicles in its fourth quarter, which was 34,423 more than the deliveries. Tesla said that it continued to transition to “a more even regional mix of vehicle builds,” which led to another increase in cars in transit at the end of the quarter.

“Tesla sells cars, and the auto industry is slowing down,” Gene Munster, managing partner of Loup Ventures, said by phone. “They are still struggling with logistics, and the gap between production and deliveries grew from the last quarter.”

Musk said during Tesla’s last earnings call that Tesla was trying to “smooth out” deliveries throughout each quarter so that the company no longer has a wave of handovers concentrated at the end of each period. Design chief Franz von Holzhausen nonetheless tweeted that he pitched in at a southern California delivery center on New Year’s Eve.

Tesla’s US quarter-end discounts were equal to the maximum tax credit electric vehicles can receive under the Inflation Reduction Act signed by President Joe Biden in August. This was a setback for Tesla, who suffered another setback late last month after the Internal Revenue Service published a list containing electric and plug-in hybrid cars that are eligible to receive federal tax credits.

Most of Tesla’s models won’t qualify under current interpretations of the law because they are either too expensive or use batteries that aren’t fully compliant. The only vehicle likely to pass muster is the seven-seat version of the Model Y, which means “consumers may have to order and spend an extra $3000 for a third row they don’t want/need on the Model Y to qualify for a tax credit,” said Bernstein’s Sacconaghi.

Musk took issue with the IRS’ eligibility list in several tweets, writing “this is messed up” on Jan. 1 and questioning Monday whether the company was being penalized for making the Model Y too mass-efficient.

Tesla doesn’t break out sales by region, but the US and China are its largest markets, and 95% of sales in 2022 were of the Model 3 sedan and Y crossover.

Fremont, California, is the location where the Model S, X, 3 & Y are made. Its Shanghai plant produces Model 3 and Y. The company began delivering Model Ys in Austin and close to Berlin in the first half last year.

While Musk handed over Tesla’s first Semi trucks to PepsiCo Inc. in December, the company didn’t report any deliveries of the model in its quarterly statement. The carmaker announced separately that it’s scheduled an investor day for March 1, where it will discuss long-term expansion plans, a next-generation vehicle platform, capital allocation and other subjects.

Some analysts are cautiously optimistic. William Stein, Truist analyst, believes now is the right time to purchase the dip. “Long-term investors should keep their eye on the prize and buy TSLA,” he wrote in a report. However, he lowered his price target to $299 instead of $348.

–With the help of Craig Trudell Subrat Patnaik Divya Baliji.

(Updates the share price movement throughout and adds additional details.

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