Tesla (NASDAQ:TSLA) has been the subject of several stock price target reductions early this week, but it still managed to make gains on Tuesday. Some reports even suggested that gross profit margins for Tesla could continue to decline at least through the fourth quarter. Nevertheless, Tesla’s stock showed resilience.
The electric vehicle pioneer is set to announce its third-quarter earnings and revenue figures on October 18th. Analysts have been revising their predictions downward, especially after recent delivery data fell significantly below the revised Wall Street consensus.
On Tuesday, UBS lowered its 12-month price target for Tesla stock from 290 to 266, just a month after increasing it from 270. Additionally, Jefferies reduced its price target for Tesla to 250, down from 265, and projected Q3 revenue at $23.87 billion with earnings per share (EPS) of 64 cents.
Despite these adjustments, Tesla stock saw a 3% increase to reach $267.48 during Tuesday’s market activity, moving above an early entry point. The stock had also rebounded on Monday, closing down just 0.3% at $259.67. Over the past week, Tesla stock managed to gain over 4%.
Tesla reported delivering 435,059 vehicles during the third quarter, a 6% decrease compared to the second quarter. Furthermore, sales of China-made vehicles in September, including exports, saw a 12% decline from August and an 11% drop compared to 2022, according to data from the China Passenger Car Association.
Wall Street consensus estimates for Tesla’s third-quarter earnings stand at 74 cents per share with revenue expected to reach $24.32 billion, as per FactSet.
Wells Fargo reiterated its equal weight rating on Tesla while adjusting its 12-month price target to 260, down from 265. The firm emphasized that Tesla would need to achieve approximately 475,000 unit deliveries in Q4 to meet its ambitious goal of 1.8 million units. This hinges on the success of the revamped Model 3 in China and the Cybertruck, which reportedly has 1.9 million preorders, according to Wells Fargo.
Wells Fargo also expressed concerns about gross profit margins, predicting a decline to 16.3% in Q3 and anticipating “further weakness in Q4,” with expectations of profit margins falling below 15%. The firm reduced its full-year EPS forecast for Tesla from $3.20 to $2.95.
Throughout the year, Tesla has been aggressively lowering vehicle prices, impacting auto gross profit margins, excluding regulatory credits, which have dipped below 20%. In a surprising move, Tesla recently reduced U.S. Model 3 and Model Y prices, including a $1,250 cut in the base Model 3 RWD price to $38,990 and a $2,000 reduction in the Model Y Long Range to $48,490.
Despite these challenges, Tesla optimists are banking on a fourth-quarter resurgence in deliveries, driven by the new Model 3 in China and the expected launch of Cybertruck deliveries. Additionally, Morgan Stanley analyst Adam Jonas speculated on an EV-smartphone convergence, maintaining an overweight rating on Tesla with a price target of $400.
As of now, Tesla stock is trading below a $278.98 buy point in a cup-with-handle base. A move above Thursday’s intraday high of $263.20 could provide an early entry opportunity for aggressive investors as the stock price breaks above a downtrend in the handle.
Analysts have also noted that the ongoing United Auto Workers strike against Ford (NYSE:F), General Motors (NYSE:GM), and Stellantis (NYSE:STLA) could potentially benefit Tesla, as it remains a nonunion shop.
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