Elon Musk‘s pioneering electric car company Tesla (NASDAQ:TSLA) is coming off of a pretty rough week, that saw its share price shaved down by 11% through Friday even in the absence of any especially bad news. Investors Friday were perhaps disheartened, therefore, when one particular Wall Street analyst decided to pile onto the sell-off with a negative forecast for Tesla’s upcoming (due out in early October) Q3 deliveries report.
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In a research note titled “Tesla, Inc. Decomposing 3Q’23 Deliveries,” Barclays analyst Dan Levy warned that the electric car giant is driving full speed towards a deliveries miss. Instead of the 463,000-ish units that Wall Street is looking for, Levy warns that Tesla is likely to deliver no more than 455,000 units through the end of Q3. What’s more, if Levy is right in his forecast, this will mark a sequential slowdown in deliveries from Q2, in which quarter Tesla delivered 466,000 units.
What’s behind this expected slowdown in deliveries? Slower production, for one thing — and weak demand for another.
According to Levy, Tesla will probably produce only 435,000 vehicles through the end of this quarter. That’s not necessarily all bad news. Inventories of unsold Tesla’s have apparently piled up, and the analyst believes that Tesla will draw upon its inventories of unsold vehicles to bridge the gap between 435,000 cars produced, and 455,000 cars delivered.
There’s also the possibility that Levy is being overly pessimistic in his forecast, as Levy admits. In Q3, notes the analyst, Tesla cut prices on its cars by as much as $5,500 per unit. On the one hand, Levy suggests that this may have “helped offset weak demand” in the quarter. But whether that offset was needed to get Tesla to 455,000 deliveries, or whether it opens up the possibility of Tesla delivering more than 455,000 units remains to be seen.
Even if it’s the latter, though, there’s risk for Tesla investors inasmuch as Levy is predicting that average sales prices of Teslas probably fell 2% to 2.5% in the quarter — meaning less revenue per car sold, and less profit, too.
That’s the bad news. The good news, as noted above, is that with Tesla slowing production down a bit, it has a chance to work down its accumulated inventories before they get too stale. As Levy points out, Tesla probably entered into Q3 with about 90,000 units of unsold inventory on its lots, of which at least one third were Model 3s. And here’s the thing: Tesla is currently preparing to “refresh” its Model 3 line with a new upgrade dubbed “Project Highland.”
Once the new version of the Model 3 comes out, you can assume that the value of old-model Model 3s will decline, and they’ll be harder to sell (at least, at good prices). And this probably lends urgency to Tesla’s effort to clear out the old inventory before it goes stale.
Admittedly, knowing this, you may then wonder why Tesla is using only 20,000 inventory units for deliveries this quarter, and not trying to clear out even more inventory? Levy answers: Of the 70,000 units of inventory remaining, “a significant portion [will be vehicles] in-transit to buyers.”
Assuming that’s the case, then clearing out even just 20,000 units of inventory could be enough to take the edge off, so to speak, and get Tesla back down to healthy inventory levels that will permit it to resume growing in Q4 and beyond.
For the time being, Levy is taking a wait-and-see attitude on how the market will react to all of this. He rates Tesla stock only Equal-Weight (i.e. Neutral) and has a $260 price target implying 6% upside. (To watch Levy’s track record, click here)
So, that’s the Barclays View; what about the rest of the Street’s take? The analyst community agrees. 12 Holds versus 11 Buys and 5 Sells present Tesla with a Hold consensus rating. The average price target is slightly above Levy’s, at $270.80, implying upside of ~11%. (See TSLA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
