On Wednesday, JPMorgan revised its price target for Tesla Inc (NASDAQ:TSLA) shares, reducing it to $115 from the previous $130 while maintaining an Underweight rating. The adjustment follows Tesla's first-quarter delivery numbers, which significantly fell short of both JPMorgan's and consensus expectations.
Analysts at JPMorgan expressed concern that the disappointing delivery figures might impact investor confidence in Tesla's long-term growth prospects, which is vital for upholding the stock's high valuation multiple.
Tesla's vehicle sales for the first quarter of 2024 showed a year-over-year decline of 9%, contrasting with the Bloomberg consensus estimate which anticipated a growth of 6%, and the company-compiled consensus which expected a 5% increase. This miss represents the largest discrepancy from analyst estimates on record for the electric vehicle maker.
Previously, analysts projected that Tesla would sell 626,000 vehicles in the first quarter, marking a 48% year-over-year growth, but the actual sales reported were only 387,000 vehicles, which is 38% below the peak forecast from June 10, 2022.
In light of these results, JPMorgan has also reduced its estimates for Tesla's first-quarter revenue, now expecting $21.4 billion compared to the previous $25.6 billion, and below the consensus forecast of $23.5 billion. The firm's forecast for earnings per share (EPS) for the first quarter has been lowered to $0.42 from the prior estimate of $0.69, which is also beneath the consensus of $0.61.
The revised EPS forecast is a steep drop from the peak consensus of $1.94 before Tesla implemented a strategy of heavy discounting to boost unit volume in response to softening demand.
Moreover, JPMorgan now anticipates a significant free cash outflow of $1.3 billion for the first quarter, a reversal from its earlier expectation of a $300 million inflow, and contrary to the consensus for a $1 billion inflow. This expectation is based on the assumption of a record increase in finished goods inventory, as Tesla produced 47,000 more vehicles than it sold in the quarter.
This inventory buildup, according to JPMorgan, suggests that the lower deliveries were due to demand constraints rather than supply issues, refuting any implications that disruptions such as the Houthi attacks in the Red Sea or the fire incident at Tesla's Berlin Gigafactory were the primary causes.
JPMorgan warns that Tesla shares, which already saw a 4.9% decline on Tuesday compared to the S&P 500's 0.7% drop, could face further decreases if the company fails to quickly revive unit volume and revenue growth. The firm cautions that investors might reconsider the premium valuation multiple currently assigned to Tesla's stock in the absence of sustained growth.
InvestingPro Insights
As Tesla grapples with its recent performance and market expectations, insights from InvestingPro can provide a deeper understanding of the company's financial standing. Tesla holds a significant market capitalization of $536.26 billion, indicating its substantial presence in the industry despite recent setbacks.
The company's P/E ratio stands at 35.45, reflecting a high valuation relative to near-term earnings growth, which is further emphasized by its PEG ratio of 1.89. This suggests that investors are paying a premium for expected growth, which may be scrutinized given the latest delivery numbers.
InvestingPro Tips highlight that Tesla is trading at a high earnings multiple and has experienced weak gross profit margins, with the last twelve months showing a gross profit of $17.66 billion and a margin of 18.25%. This data is particularly relevant given JPMorgan's concerns about Tesla's ability to sustain its high valuation multiple in light of the delivery shortfall.
Moreover, with 16 analysts having revised their earnings downwards for the upcoming period, investor caution may be warranted. Yet, it's important to note that Tesla is still recognized as a prominent player in the Automobiles industry and its liquid assets exceed short-term obligations, providing some financial stability.
For readers interested in a more comprehensive analysis, there are over 20 additional InvestingPro Tips available for Tesla, which can be explored for more nuanced investment decisions. To access these, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. This could be an invaluable resource for those looking to understand the potential trajectory of Tesla's stock in the aftermath of its Q1 performance.
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