As Tesla prepares to release its third-quarter delivery report, Wall Street analysts are expressing concerns that the electric carmaker may miss estimates due to a combination of planned factory shutdowns and softer demand. The report, expected as early as Sunday, has led several brokerages, including Barclays, Baird, and Guggenheim, to caution investors about potential challenges ahead.
Factory Downtime Impact
One of the primary reasons cited for the potential weakness in Tesla’s third-quarter delivery numbers is the downtime at its manufacturing plants in Europe and China. These factory shutdowns are aimed at upgrading equipment and preparing for the production of the updated Model 3 sedan and the highly anticipated Cybertruck. While these retooling efforts may have short-term effects, analysts believe they could set the stage for a strong fourth quarter.
Estimates and Expectations
Analysts are estimating that Tesla may deliver between 439,200 and 455,000 vehicles in the September quarter. This falls below the overall Wall Street expectation, which averages around 458,713 vehicles, based on estimates from 11 analysts compiled by LSEG. If these estimates hold true, it would signify a 1.6 percent decline in deliveries compared to the previous quarter, marking Tesla’s first sequential decline since the second quarter of 2022.
Challenges in a Competitive Landscape
Some analysts are cautioning that a disappointing report could lead to the need for further price cuts to stimulate sales. Rising competition in the electric vehicle (EV) market, coupled with a broader slowdown in EV demand, presents challenges for Tesla. Guggenheim noted that it’s not just supply issues but also weak demand signals that could necessitate future price reductions, potentially impacting Tesla’s industry-leading margins.
Price Adjustments and Margin Pressures
Tesla has already taken steps to address these challenges. In the third quarter, the company reduced prices for its Model S and Model X by 14 percent to 21 percent in key markets such as China and the United States. Furthermore, it increased discounts on its popular Model 3 and Model Y, offering incentives exceeding $5,000 in the United States, while also adjusting prices and incentives for the Model Y in China. Additionally, Tesla scaled back its production plans at its German factory in response to soft demand.
Optimism for the Fourth Quarter
Despite the potential headwinds in the third quarter, some analysts remain optimistic about Tesla’s prospects in the final three months of the year. The eagerly awaited updated Model 3, set to launch in Europe and China in the fourth quarter, is expected to bolster demand with its higher pricing and positive early reviews. This fresh iteration of the Model 3 is seen as a significant driver of demand in an evolving market.
Tesla as an Alternative Investment
In the midst of an ongoing autoworkers’ strike at the Detroit Three automakers (Ford, General Motors, and Stellantis), Tesla emerges as a potential alternative investment option. The strike, nearing its third week, could result in increased costs for these legacy automakers, further pressuring their electric vehicle businesses. For some investors, Tesla remains a viable choice, offering an alternative in the rapidly changing automotive landscape.
While Tesla shares have faced a recent decline of about 5 percent on expectations of a delivery shortfall, they have nearly doubled in value over the course of the year. As the company navigates these challenges, the upcoming delivery report will provide valuable insights into its performance and prospects in the evolving electric vehicle market.