With Deliveries Missing Estimates, What’s Next For Tesla Stock?

Tesla (NASDAQ:TSLA) saw its deliveries for the third quarter fall short of market estimates due to planned factory shutdowns which hit production. Tesla delivered a total of 435,059 vehicles in the quarter, down about 7% sequentially, although this was about 26% higher compared to last year. However, the company reiterated its target of delivering 1.8 million vehicles this year, up from 1.3 million in 2022.

The factory upgrades carried out over the last quarter should actually help Tesla eventually boost sales with new models. For perspective, Tesla scaled back on production at its Austin, Texas factory as it preps to manufacture the Cybertruck. The company held back on production in China as it worked to launch an upgraded version of its Model 3 sedan.  Separately, Tesla just reintroduced the rear-wheel-drive version of its popular Model Y crossover-sized vehicle in the U.S. at a price of about $44,000. After accounting for the Federal tax credit of $7,500, the electric vehicle could cost qualifying customers just about $36,500. The lower starting price on the Model Y should make Tesla’s most popular vehicle more competitive than gasoline-based vehicles in the segment.

We note that TSLA stock has had a Sharpe Ratio of 0.9 since early 2017, which is better than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

We currently remain relatively neutral on Tesla stock, with a $263 price estimate, which is 5% ahead of the current market price. We continue to believe that Tesla will remain a big beneficiary of the long-term transition to cleaner transportation and energy generation, with the company benefiting from its well-oiled supply chain, superior battery and drive train tech, and its lead with software and self-driving technology. However, Tesla stock presently trades at over 71x forward consensus earnings, which could limit near-term upside. Competition is also mounting and Tesla’s price cuts in the United States as well as China are impacting margins. Tesla’s earnings for 2023 are projected to decline year-over-year.  See our analysis on Tesla Valuation: Is TSLA Stock Expensive Or Cheap? for more details on Tesla’s valuation and how it compares with peers. For more information on Tesla’s business model and revenue trends, check out our dashboard on Tesla Revenue: How Does TSLA Make Money?

[1] Month-to-date and year-to-date as of 10/4/2023
[2] Cumulative total returns since the end of 2016

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