Tesla Shares Drop Over 15% Amid Pessimistic Comments by Elon Musk
Tesla shares experienced a significant decline of more than 15% in the past few days, closing the week at $211.99. The drop came after CEO Elon Musk expressed pessimism about macroeconomic issues during a third-quarter earnings call on Wednesday.
This decline represents the worst week for Tesla stock this year, although the electric automaker’s shares are still up 96% year-to-date.
Financial Performance and Cost-Cutting Measures
In the third quarter of 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 and the same quarter last year.
During the earnings call, Musk emphasized the need for cost-cutting and price reductions in the upcoming quarters. He expressed concerns about the economy and stated that these measures are crucial for Tesla’s success.
Concerns About Cybertruck and Autonomous Vehicle Tech
Musk also dampened shareholders’ expectations for Tesla’s long-delayed Cybertruck. He refrained from providing details about the company’s “robotaxi” and autonomous vehicle technology, which have been promised for years. Tesla is currently trailing behind Cruise and Waymo in the US, as well as other robotaxi developers like Didi in China.
Musk even stated that the company “dug its own grave with Cybertruck” during the call. He tempered expectations for the vehicle, acknowledging that it will take some time before it becomes a positive cash flow contributor.
The Importance of Affordability and Cost Reduction
Musk assured that the demand for Tesla vehicles is high, with over 1 million people having reserved the Cybertruck. However, he emphasized the need to make the vehicle affordable for customers, acknowledging the difficulty in achieving this goal.
Tesla’s new CFO, Vaibhav Taneja, echoed Musk’s concerns and stated that reducing the cost of their vehicles is their top priority. He mentioned that there is a lag in cost reductions, which impacts margins.
Mixed Market Response and Analysts’ Views
Despite Musk’s optimistic claims about AI development and the company’s long-term potential, the market did not respond positively. Even analysts who are typically bullish on Tesla issued cautious notes after the company’s Q3 results.
Wells Fargo analyst Colin Langan wrote, “No more rose-colored glasses,” while Morgan Stanley’s Adam Jonas reduced his price target for Tesla shares. However, Jonas still sees a significant upside potential in the stock.
Toni Sacconaghi of Bernstein, who is usually skeptical of Tesla’s hype, maintained an underperform rating with a $150 price target, suggesting a downside for the stock.
Some long-term believers in Tesla, including Jonas, view the Q3 results as a warning sign for the broader outlook of electric vehicles. Chinese EV makers and other automakers also saw share declines following Tesla’s cautious earnings call.
