Morgan Stanley analysts cut the earnings estimates and the price target for Tesla (NASDAQ:TSLA) stock, citing decelerating electric vehicle (EV) demand “despite continued price cuts.”
The 12-month target price was reduced from $345 to $320. Simultaneously, the analysts reduced the GAAP earnings per share (EPS) forecast to $0.99 from $1.54.
“If there was ever a time for Tesla to potentially post a GAAP EBIT loss in the auto business, it may be this year,” the analysts wrote.
The downward revisions come mainly due to demand concerns. This is particularly evident outside EV-friendly regions like California, where penetration hits 25%, comparable to China.
The growth challenge now lies in less EV-ready areas of the US, such as suburbs of Dallas or Cleveland, where demand, infrastructure, and cost benefits lag.
In China, an oversupplied EV market is leading to price cuts, suggesting a competitive year ahead in 2024, the analysts noted, with manufacturers like BYD reducing prices by up to 20% for new models.
“We expect Tesla’s 1H24 results to come in below expectations on profitability, with GAAP OP margins in the 2-3% range, implying underlying EV manufacturing margins (ex downstream retail and ZEV credits) to be potentially in the red,” the analysts said.
“In response to falling profitability, we anticipate Tesla will pull back on price cuts to defend margins and cash flow,” they wrote.
TSLA shares were up 1% in premarket trading.