On January 3rd local time, Tesla's US stock market opened below $236.520, a drop of over 20%. The closing price of the day returned to $238.450, a drop of over 4%. Recently, Tesla released production and sales data for the fourth quarter and full year of 2023. Why was Tesla, which achieved its annual sales target of 1.8 million under pressure, bearish in the market and saw its stock price decline?
From the perspective of the capital market, on January 3rd local time, the three major US stock indexes collectively closed down, with the Nasdaq recording four consecutive declines. Tesla's stock price trend is similar to that of the Nasdaq index. This is related to a series of signals released by the Federal Reserve, with interest rate cuts becoming a key focus of policy discussions at the Federal Reserve in 2024. At last December's interest rate meeting, Federal Reserve Chairman Powell unusually talked about interest rate cuts and stated, "I believe policy rates have reached or are approaching their peak, and rate cuts have begun to enter the picture. Decision makers are thinking and discussing when it is appropriate to cut rates." In the 2024 rotating vote committee, the voice of the "dove faction" was even louder, directly causing market frenzy and optimistically predicting a 150 basis point rate cut in 2024.
However, on January 3rd local time, Richmond Fed President Barkin stated in a public speech that there is still a possibility of further interest rate hikes, which will have a certain impact on the stock market. The minutes of the December 2023 interest rate meeting released in the afternoon have also changed their attitude to "hawkish". Although participants are still willing to cut interest rates in 2024 under certain conditions, "uncertainty" is also filled with the minutes. Not only does it not support the 150 basis point interest rate cut cycle this year, but it is also uncertain when to cut interest rates. Wall Street's expectations for the Federal Reserve's interest rate cut in 2024 have greatly cooled, causing the US stock market to suffer a heavy blow, and Tesla has not been spared.
The Bank of America equity team stated that large technology stocks will "collapse" in January, which has become a consensus on Wall Street. The team pointed out that active funds that only go long have reached a critical level of exposure to the seven giants of the US stock market - Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla.
Returning to the global new energy vehicle market, some Wall Street institutions believe that the penetration rate of new energy vehicles has reached a bottleneck, and there is still a gap in technology and infrastructure between new energy vehicles and fuel vehicles. Cowen analyst Jeffrey Osborne pointed out in the latest report that since 2022, the average price of new electric vehicles has decreased by about 21%, but consumers still hesitate to purchase electric vehicles. Most people believe that battery reliability still needs to be improved, the lack of available public charging stations, and the long time required for complete charging are the main obstacles they cannot overcome.
Some also argue that the main reason for the overall weakness of the electric vehicle market is that pioneers who are willing to pay for new technologies may have already tasted it, while mainstream buyers remain cautious about high prices and the nascent electric vehicle ecosystem. In addition, the policies of governments around the world in promoting new energy vehicles are also showing a decline. At the end of last year, due to budget shortages, the German government prematurely ended the "Environmental Bonus" plan, which is a subsidy provided by the German government for the sales of C-end electric vehicles. The original plan was to be implemented until the end of 2024.
The guidance on the ban on clean energy vehicle tax credits under Section 30D of the US government's Inflation Reduction Act also officially came into effect this year. Compared to 2023, the standards that came into effect this time are stricter. The number of pure electric vehicles that meet subsidy requirements has been reduced from 17 to 8, and some Tesla Model 3 versions have temporarily lost their eligibility for tax credits. The electric pickup truck Cybertruck has also not been included, which means Tesla will indirectly increase its price.
In the North American market, competition in the automotive market is still mainly in the two major camps of gasoline and new energy vehicles, while in the Chinese market, the problem is even more complex. The "price war" in the new energy vehicle market is still ongoing, with "internal competition" running through the Chinese automotive market in 2023 and continuing into 2024. Competitors who are eyeing Tesla's market share are constantly emerging.
The initiator of the "price war" is Tesla, but adjusting prices is also Tesla's main or even only means of boosting sales in the Chinese market. Industry insiders have pointed out that Tesla's effect of stimulating the market through price cuts and increases is becoming increasingly low. Simply put, people are becoming numb to the "wolf is here". But the "price war" that harms the enemy by one thousand and self harms by eight hundred will eventually backfire. Tesla's financial report has already shown a trend of overall revenue growth declining and net profit margins continuing to decline.
Regarding this, analysts on Wall Street have expressed concerns about Tesla's future profitability, with a 43% decrease in Tesla's profit forecast for 2024. "When the penetration rate of electric vehicles slows down, the 'greater risk' faced by Tesla is that the growth and profitability in 2024 may be lower than expected." Deutsche Bank pointed out. Royal Bank of Canada has directly lowered its delivery expectations for Tesla in 2024 and 2025.
Roth MKM analyst Craig Irwin, who has long been bearish on Tesla, said in an interview with foreign media that Tesla's stock price has been extremely overvalued. He reiterated Tesla's target price of $85, which is more than 65% lower than last week's closing of $248.48, and the stock has increased by about twice last year. He pointed out that Toyota produces about 9 million cars annually in Japan, while Tesla only produced 1.37 million in 2022, and it is not clear that Tesla has something that Toyota does not have. But he still gave Tesla a "neutral" investment rating, believing that the company still has ways to boost its stock price.
Not only that, in the fourth quarter of 2023, Tesla's pure electric vehicle sales were overtaken by BYD, losing the global single quarter pure electric vehicle sales champion, which is also seen as Tesla's disappointing performance in the market. However, Tesla CEO Musk quickly responded by saying, "Tesla is an AI/robotics company, but in the eyes of many people, it is an automotive company."
Although Musk's pursuit is ambitious and great, it cannot be ignored that Tesla's products are being bearish by Wall Street in its main business. Firstly, the appeal of the new Model 3 to consumers has not brought a breakthrough to Tesla. While the price has risen, the configuration is not satisfactory, and there are no new highlights. Tesla still relies on brand strength to support sales; Secondly, as a new growth pole in the automotive sector, the electric pickup truck Cybertruck is still in the stage of ramping up production capacity. By 2025, its annual production capacity will reach 250000 units, which is far from the millions of orders. In addition, the price of Cybertruck is also $30000 higher than the pre-sale price, with a 52% increase in starting price. All of these indicate that the actual conversion rate of orders is facing challenges. The Royal Bank of Canada pointed out, "The conversion rate for bookings exceeding 1 million will be very low, possibly below 20%."
Regarding the contribution of Cybertruck to Tesla's financial report, Musk also admitted that it will take 12 to 18 months for this new car to generate "significant positive cash flow," which means Cybertruck will not be profitable for about a year and a half.
Although most Wall Street institutions are still optimistic about Tesla's stock price in the long term, there are also those who have lowered their target stock price. Under various factors, Tesla will also usher in a challenging year of 2024.