Tesla Shares Drop After CEO Elon Musk Expresses Pessimism
Tesla shares experienced a significant drop of over 15% in the last few days, closing the week at $211.99. This decline came after CEO Elon Musk expressed concerns about macroeconomic issues during a third-quarter earnings call on Wednesday.
Although this marks the worst week for Tesla stock this year, the electric automaker’s shares are still up by 96% year-to-date.
Q3 Financial Results
For the period ending on September 30, 2023, Tesla reported $23.35 billion in revenue and $1.85 billion in profits. However, these figures represent a decline compared to the previous quarter, as well as a decrease from the same quarter last year.
Pessimistic Economic Outlook
During the earnings call, Elon Musk, who is involved in various ventures including Tesla, X (formerly Twitter), SpaceX, xAI, Neuralink, and The Boring Co., expressed a deeply pessimistic outlook on the economy. He emphasized the need for cost-cutting and price reductions in the coming quarters for Tesla.
Musk also tempered expectations for Tesla’s long-delayed Cybertruck and refrained from providing details about the company’s autonomous vehicle technology. He acknowledged that Tesla is lagging behind competitors such as Cruise and Waymo in the U.S., as well as Didi in China.
Cybertruck Challenges
Musk admitted that Tesla encountered difficulties with the Cybertruck, stating, “We dug our own grave with Cybertruck.” He also cautioned that it would take around a year to 18 months for the Cybertruck to become a positive cash flow contributor. Despite having over 1 million reservations for the vehicle, Tesla needs to manufacture it at an affordable price.
Upcoming Cybertruck Event
Tesla is planning an event on November 30 to officially debut the Cybertruck. However, specific details regarding the truck’s specifications and pricing have not yet been disclosed. It remains uncertain how many of the individuals who made a $100 refundable reservation for the Cybertruck will follow through with their purchase.
Focus on Cost Reduction
Musk reiterated Tesla’s commitment to reducing costs internally and for customers. He expressed concern about the high-interest rate environment, as it becomes increasingly challenging for people to afford Tesla vehicles under these circumstances. Tesla’s new CFO, Vaibhav Taneja, echoed these concerns, emphasizing that cost reductions take time and impact margins.
Tesla’s Long-Term Vision
Despite the market’s tepid response, Musk expressed optimism about Tesla’s long-term goals, particularly in AI development. He believes that fully autonomous cars and humanoid robots powered by AI have the potential to make Tesla the most valuable company globally.
Analyst Reactions
Following Tesla’s Q3 results, even analysts who are typically bullish on the company issued cautious notes. Wells Fargo analyst Colin Langan wrote, “No more rose-colored glasses,” while Morgan Stanley’s Adam Jonas lowered his price target. However, Jonas still sees a more than 56% upside potential.
Toni Sacconaghi of Bernstein, known for his skepticism towards Tesla, maintained an underperform rating with a $150 price target, suggesting a 38% downside from the closing price on Wednesday. He questioned whether the company’s story was broken, considering factors such as declining earnings and high valuation.
Furthermore, Tesla’s Q3 results also impacted Chinese EV makers and other automakers, as their shares declined in response to the cautious call.
