Tesla (NASDAQ: TSLA) stock saw a modest rise in pre-market trading Thursday. JPMorgan has issued a warning, citing weak deliveries and growth concerns.
JPMorgan, a prominent brokerage firm, has taken a notable step back on its outlook for Tesla (TSLA) shares, slashing its price target to $115 from the previous $130 while upholding an Underweight rating. This move comes in response to Tesla’s lackluster first-quarter delivery numbers, which fell substantially short of JPMorgan and consensus estimates.
JPMorgan analysts have voiced concerns that the disappointing delivery figures could shake investor confidence in Tesla’s long-term growth prospects, a factor crucial for maintaining the stock’s high valuation multiple.
The first quarter of 2024 saw a year-over-year decline of 9% in Tesla’s vehicle sales, a stark contrast to the Bloomberg consensus estimate, which predicted a growth of 6%, and the company-compiled consensus, which expected a 5% increase. This deviation marks a record disparity from analyst forecasts for the electric vehicle giant.
Analysts had previously projected that Tesla would sell 626,000 vehicles in the first quarter, indicating a 48% year-over-year growth. However, the actual sales reported were only 387,000 vehicles, a figure 38% below the peak forecast from June 10, 2022.
JPMorgan Cuts Q1 EPS Forecast
Following these results, JPMorgan has also revised its estimates for Tesla’s first-quarter revenue, now expecting $21.4 billion as opposed to the previous $25.6 billion, and below the consensus forecast of $23.5 billion. The firm has lowered its first-quarter earnings per share (EPS) forecast to $0.42 from an earlier estimate of $0.69, which is also below the consensus of $0.61.
The revised EPS forecast represents a steep fall from the peak consensus of $1.94 before Tesla adopted a strategy of heavy discounting to boost unit volume in response to waning demand.
Moreover, JPMorgan now expects a significant free cash outflow of $1.3 billion for the first quarter, a reversal from its previous expectation of a $300 million inflow and diverging from the consensus of a $1 billion inflow. This expectation is predicated on a record increase in finished goods inventory, as Tesla produced 47,000 more vehicles than it sold in the quarter.
According to JPMorgan, this inventory buildup indicates that the lower deliveries were due to demand constraints rather than supply issues, debunking any suggestions that disruptions such as the Houthi attacks in the Red Sea or the fire incident at Tesla’s Berlin Gigafactory were the main culprits.
Tesla (NASDAQ: TSLA) shares, which already experienced a 4.9% decline on Tuesday compared to the S&P 500’s 0.7% drop, could face further decreases, warns JPMorgan. The firm warns that if the company does not quickly revive unit volume and revenue growth, investors may rethink the premium valuation multiple they currently assign to Tesla’s stock in the absence of sustained growth.
Tesla (NASDAQ: TSLA) Stock Performance
TSLA stock inclined 1.05% to close at $168.38 on Wednesday. The traders had exchanged hands with 82,374,795 (82.37 million) shares compared to the average daily trading volume of 102.54 million.
