Tesla shares slump on slower deliveries and demand worries

Tesla shares started 2023 where they left off last year, plunging by about 13% on Tuesday on growing worries about weakening demand and logistical problems that have hampered deliveries for the world’s most valuable carmaker.

Once worth more than $1-trillion, Tesla lost more than 65% in market value in a tumultuous 2022. Tuesday’s slide knocked nearly $50bn in market value off of Tesla, roughly equal to the valuation of rival Ford Motor, which last year sold three times as many cars as Tesla.

The sell-off came after Tesla missed estimates for fourth-quarter deliveries despite shipping a record number of vehicles. Tuesday’s decline made it the worst S&P 500 performer for the day.

Several Wall Street analysts said they expected more pressure on the stock in coming months as it faces stiffer competition from other automakers and weaker global demand.

At least four brokerages cut their price targets and earnings estimates on Tuesday, pointing to the deliveries miss and Tesla’s decision to offer more incentives to boost demand in China and the US, the two largest global vehicle markets.

“Demand overall is starting to crack a bit for Tesla and the company will need to adjust and cut prices more especially in China, which remains the key to the growth story,” Wedbush Securities analyst Dan Ives said.

Global carmakers have in the past few months battled a demand downturn in China, the world’s number one vehicle market, where the spread of Covid-19 has hit economic growth and consumer spending.

Tesla is offering hefty discounts there, as well as a subsidy for insurance costs.

The electric-vehicle maker’s performance in 2022 was among the worst in the benchmark S&P 500 index. Tesla’s shares last traded at $107.11, and its market value has declined by about $400bn since CEO Elon Musk secured financing to buy social media firm Twitter.

Worth about $340bn now, Tesla is still the world’s most valuable carmaker, even though its production is a fraction of rivals such as Toyota Motor.

Tesla delivered 405,278 vehicles in the fourth quarter, short of analysts’ estimates of 431,117, according to Refinitiv. For all of 2022, its deliveries rose by 40%, missing Musk’s 50% annual target.

The result “came at the cost of higher incentives, suggesting lower pricing and margin”, brokerage JPMorgan said in a note, lowering its price target by $25 to $125.

The shortfall highlighted the logistics hurdles facing a company, which is known for its end-of-quarter delivery rush. The gap between production and deliveries has widened to 34,000 vehicles as more cars got stuck in transit.

The carmaker also plans to run a reduced production schedule in January at its Shanghai plant, extending the lowered output it began in December into 2023, Reuters reported.

Reuters