It appears that Tesla (TSLA) is implementing a strategy of offering vehicle discounts and reducing prices in an effort to boost demand. The latest round of price cuts in Europe has raised concerns about Tesla's margins and potential challenges in achieving profits in 2024. Despite the ongoing price reductions, Tesla's stock has experienced a decline of more than 13% in January, falling below key support levels.
The company has been consistently cutting prices in 2024, including reducing vehicle prices in China for the Model 3 and two Model Y variants, as well as slashing Model Y prices in various European countries. These price cuts coincide with Tesla Berlin's decision to suspend production for two weeks starting January 29.
Some analysts, such as Gary Black, managing partner of the Future Fund, have revised their 2024 earnings estimates downward based on the January price cuts. Black also expressed concerns that Tesla's strategy of cutting configurator prices and offering inventory discounts might be viewed as value-destructive, suggesting that it encourages customers to wait for better deals.
As Tesla approaches its Q4 earnings report, analysts are closely watching the company's vehicle pricing and margins for 2024. Auto gross margins have reportedly fallen below 20%, with questions about whether they could drop further due to the impact of previous price cuts and inventory discounting.
Barclays analyst Toni Sacconaghi and others are particularly focused on auto gross profit margins as a key factor going into Q4 earnings. Barclays predicts that 2024 will be the first time in Tesla's history that volume will likely be more dependent on demand than on the company's production capacity. The firm expects Tesla to deliver 1.97 million units in 2024.
In terms of stock performance, Tesla's shares have declined over 11% in January, and the company faces challenges in a demand-constrained environment. Wall Street forecasts for Q4 earnings anticipate a 39% decrease in EPS and a 5% increase in revenue. Looking ahead to 2024, analysts predict earnings to remain below 2022 levels, with a forecasted EPS of $3.72 and revenue totaling $117.03 billion. Despite the challenges, there is an expectation of auto gross profit margins growing in Q1 2024, reaching 18.8%.
The relative strength line, a measure of a stock's performance compared to the S&P 500, is currently at its lowest level since late May, as reported by MarketSmith.
Throughout 2023, Tesla demonstrated exceptional growth, doubling in value and significantly outperforming the broader S&P 500 index. Despite recent challenges, Tesla stock holds the fifth position in the IBD Auto Manufacturers industry group, which consists of 35 members. The stock is assigned a Composite Rating of 68 out of a possible 99, indicating its overall strength. Additionally, Tesla boasts a Relative Strength Rating of 67 and an impressive EPS Rating of 88. These ratings reflect the company's performance relative to its peers and its earnings per share strength.
In essence, Tesla's relative strength line is currently experiencing a decline, reaching its lowest point since late May, despite the stock's notable outperformance in 2023. These metrics provide insights into Tesla's standing within its industry and its overall performance compared to the broader market.
--------The article excerpted from IBD DIGITAL.