Wall Street's expectations for Tesla are rapidly fading, with at least two analysts becoming more cautious about the electric car maker in two days. Analysts say that in 2024, some electric vehicles produced by Tesla may no longer meet government subsidy standards in the United States and some European countries, which will further pressure the company's revenue at a time when demand is already expected to slow down.
"If Tesla continues to push for growth next year, the loss of these incentives may further increase the risk of price cuts," Tudor, Pickering, Holt & Co. analyst Matt Portillo wrote in a note on Tuesday. Portillo also expects Tesla's deliveries in the final three months of 2023 to be below analysts' average expectations.
Wall Street has become increasingly bearish on Tesla's performance, and the above-mentioned unfavorable comments have made matters worse. Analysts' average forecast for Tesla's fourth-quarter profit is down 55% from 12 months ago, while forecasts for 2024 profit are down 43%, according to compiled data.
In terms of sales, data shows that analysts’ average forecast for Tesla’s fourth-quarter deliveries exceeds 481,000 vehicles. Portillo's forecast is about 470,000 units and he has a sell rating on the stock. RBC Capital Markets analyst Tom Narayan predicts about 476,000 vehicles, and his rating on the stock is equivalent to a buy.
On Monday, Narayan lowered his forecast for Tesla's 2024 and 2025 deliveries to reflect more modest Model 3 and Model Y sales growth, citing headwinds the company faces including increased competition and the loss of federal incentives. Narayan said some of Tesla's mass-market Model 3 models will lose their full federal tax credits next year.
Tudor's Portillo said the company may face similar problems in France and Germany. In addition to the subsidy issue, following Tesla's first warning in its third-quarter financial report in October, the market is now generally expecting that electric vehicles will face a slowdown in industry demand.
A big part of the overall weakness in EVs is that early adopters who are willing to pay for new technology may have already bought in, while mainstream buyers remain wary of high prices and the fledgling EV ecosystem.
"Since 2022, the average price of new electric vehicles has fallen by about 21%, but consumers are still afraid to take the risk of buying, with most citing battery reliability, lack of available public charging stations, and the time it takes to charge the battery as important insurmountable obstacles," Cowen analyst Jeffrey Osborne wrote in a note to clients on Tuesday.
As a result, analysts' profit and revenue expectations for Tesla, which only sells electric vehicles, have been declining. Portillo and Narayan are not alone in their concerns about next year.
On Friday, Deutsche Bank analyst Emmanuel Rosner said that as the penetration of electric vehicles slows down, Tesla faces a "greater risk" that its growth and profits in 2024 may be lower than expected.
Tesla shares rose 2% on Tuesday, bringing their cumulative gain this year to 109%. But the stock's relative underperformance this quarter reflects worsening expectations for electric vehicle adoption in 2024. Tesla's stock price has risen 2.8% this quarter, underperforming the S&P 500 index's more than 11% gain during the same period.