Tesla, Inc. experienced a significant drop in its stock value, with shares plummeting over 15% during the past week, ultimately closing at $211.99.
This marks Tesla’s most challenging week in terms of stock performance this year, though the company still boasts a 96% increase in share value year-to-date.
Musk’s Pessimistic Outlook
The dip in stock value followed Tesla’s third-quarter earnings call, where CEO Elon Musk expressed a notably pessimistic stance on macroeconomic issues. The company reported $23.35 billion in revenue and $1.85 billion in profits for the period ending September 30, 2023. While these figures represent substantial earnings, they signify a decline compared to the preceding quarter and the same quarter in the previous year.
During the earnings call, Musk emphasized the need for cost-cutting and price reductions for Tesla in the forthcoming quarters. He acknowledged that the economy’s uncertain outlook demands proactive measures to ensure the company’s financial stability.
Musk said during a question-and-answer portion of the earnings call with analysts, “I am worried about the high-interest rate environment that we’re in,” he said, adding that “If interest rates remain high or if they go even higher, it’s that much harder for people to buy the car. They simply cannot afford it.”
Tesla’s Long-term Vision and Market Response
Also, Tesla’s new CFO Vaibhav Taneja, on the call, echoed Musk’s sentiment. “Reducing the cost of our vehicles is our top priority. We’ve tried to offset such adjustments via our focus on reducing costs. However, there is an inherent lag in cost reductions, which in turn impacts margins,” he said.
Musk also provided a tempered update on the long-awaited Cybertruck, asserting that the vehicle’s launch would require careful consideration of pricing to accommodate its extensive demand. While more than one million reservations have been made for the Cybertruck, Musk emphasized the need to strike a balance between affordability and profitability.
In response to rising interest rates, Musk expressed concern about the potential impact on consumers’ purchasing power. He said that making Tesla’s vehicles accessible to a wide range of buyers remains a top priority.
Although Musk articulated a long-term vision for Tesla, including significant investments in artificial intelligence and the potential for fully autonomous vehicles, the market did not respond as positively as it has in the past. Some analysts, typically bullish on Tesla, issued cautious notes following the Q3 results, indicating a more cautious outlook for the company’s future.
As an example, Morgan Stanley’s Adam Jonas adjusted his price target from $400 to $380. However, it’s worth noting that even with this reduction, his forecast suggests a potential upside of over 56%, as indicated in a note released after the Q3 Tesla call.
“How can we defend a ‘growth’ stock that appears ready to enter its 2nd consecutive year of earnings decline?” Jonas asked. He later answered, “We feel it is also important and reasonable to consider the long-term potential of the products and services being commercialized by the company,” in the note.
Tesla’s recent stock fluctuations have prompted reflection on the broader landscape for electric vehicles (EVs). Some analysts interpret Tesla’s Q3 results as a signal of a potentially challenging outlook for the EV industry as a whole, impacting not only Tesla but also Chinese EV manufacturers and other automakers.
However, during the call, Musk made several optimistic statements, including his assurance to investors that Tesla remains committed to substantial investment in AI development. He described AI as a “massive game changer” with the potential to propel Tesla to become the world’s most valuable company by a significant margin. Musk envisions achieving this through the widespread adoption of fully autonomous cars and fully autonomous humanoid robots.