As we step into 2024, Tesla (TSLA) is sticking to its game plan of luring in customers with discounts and lower prices. While this approach is geared towards revving up demand, it has set off alarm bells about the potential impact on Tesla’s profit margins and the uphill battle it may face to turn a profit this year.
The recent price slashes in Europe have heightened scrutiny, especially with the imminent release of fourth-quarter and full-year earnings, leading to a dip in Tesla’s stock on Wednesday, reflecting the nerves of investors.
Stock Rollercoaster in January
The first month of the year hasn’t been kind to Tesla’s stock, which needs to be mentioned as one of the biggest stock gainers, witnessing a retreat of over 13% and slipping below crucial support levels. Analysts are keeping a keen eye on the dynamics of auto gross profit margins, excluding regulatory credits, and the stability of vehicle pricing amidst this rollercoaster ride.
Tesla’s Pricing Odyssey in 2024
Despite the stock’s stumble, Tesla remains unwavering in its pricing strategy for 2024. In a bid to make its electric vehicles more accessible, the company initiated price cuts in China for the Model 3 and two Model Y variants. Adding to this, on a recent Tuesday, Tesla decided to slash Model Y prices across several European countries. Interestingly, these adjustments came at the same time as Tesla Berlin’s announcement of a two-week production suspension starting January 29.
Voices from the Investor Arena
On January 17, Gary Black, the managing partner of the Future Fund, shared his take on Tesla’s strategy through a post on X. Black, revising 2024 earnings estimates down to $3.75 per share from $3.90 per share, voiced concerns about the simultaneous reduction of configurator prices and inventory discounts. He believes this tactic could condition customers to wait for better deals, potentially harming the company’s value.
Tesla’s stock witnessed a 2% dip to 215.55 on Wednesday after earlier losses, but on Tuesday, it showed resilience, closing 0.5% higher at 219.91. Currently residing below its moving averages, the stock indicates a downward trend over four consecutive weeks.
Reflecting on 2023’s Pricing Chronicles
Recapping Tesla’s pricing narrative in 2023, the company aggressively trimmed vehicle prices and generously offered discounts throughout the year to maintain sales momentum. Auto gross margins, which soared to 30% in Q4 2021 amid industry chip shortages, have now dipped below 20%. Analysts, who initially foresaw the conclusion of Tesla’s price cuts and the bottoming out of auto gross margins in late 2023, have now redirected their gaze to the potential hurdles awaiting Tesla in 2024.
Anticipating Tesla’s Financial Report Card
As the anticipation builds for Tesla’s Q4 earnings and revenue report, analysts are honing in on the trajectory of vehicle pricing and margins for 2024. Bernstein analyst Toni Sacconaghi has flagged auto gross profit margins as a pivotal concern leading up to Q4 earnings, modeling a 15.7% margin. However, he acknowledges the possibility of further declines due to previous price cuts and inventory discounts in Q4.
Dan Levy, an analyst at Barclays, recently modified the company’s price target for Tesla stock, revising it downward to 250 from the previous 260, while retaining an equal weight rating. Levy’s analysis underscores Tesla’s potential volume pressure in 2024, a shift from historical patterns where volume was more tethered to production capacity rather than demand. Levy forecasts Tesla delivering 1.97 million units in 2024.
Mixed Reactions to Stellar Q4 2023 Performance
Reflecting on Tesla’s recent performance, the company surpassed Wall Street predictions on January 2, reporting deliveries in Q4 that set a record for the number of vehicles sold and met full-year expectations. However, analysts’ reactions were restrained.
The full-year and Q4 earnings and revenue figures are slated for release on January 24, with Wall Street anticipating a 39% decrease in EPS to 73 cents and a 5% increase in revenue to $25.61 billion in Q4.
Navigating the Financial Landscape in 2024
Looking into 2024, analysts project a further dip in earnings, forecasting an EPS of $3.72 and revenue totaling $117.03 billion. This outlook represents a 34% reduction compared to the January 2023 estimate. While analysts predict an uptick in auto gross profit margins to 18.8% in Q1 2024, concerns linger about Tesla’s overall performance and profitability in the coming year.
Tesla’s stock has encountered a rocky start to 2024, with a decline of over 13% in January. Last week, TSLA shares plummeted 7.8% to 218.89, slipping below the 50-day and 200-day lines. The stock is currently in a double-bottom base with a 278.98 buy point, according to MarketSmith analysis. The relative strength line, which gauges Tesla’s performance in comparison to the S&P 500, currently sits at its lowest point since late May.
Closing Thoughts on Tesla’s 2024 Journey
In conclusion, Tesla’s pricing strategy in 2024, characterized by persistent discounts and price cuts, has led to fluctuations in stock performance and raised concerns among analysts. Striking the right balance between stimulating demand and maintaining healthy profit margins will be crucial for Tesla as it navigates the competitive electric vehicle market throughout the year.