As Tesla, Inc. (NASDAQ: TSLA) gears up for the much-anticipated launch of its Cybertruck tomorrow, the electric vehicle giant faces a pivotal moment. This innovative vehicle marks Tesla’s foray into a new era of passenger transportation, marking its first new passenger vehicle following the success of the Model Y in 2020. The Cybertruck, with its futuristic design and advanced features, has long been touted as a critical player in Tesla’s future growth.
However, a recent shift in sentiment emerged after a cautious tone in Tesla’s Q3 earnings report. Elon Musk, the visionary CEO, acknowledged the significant challenges in scaling up production for the Cybertruck. Despite an ambitious target of producing 250,000 vehicles annually, the reality may only materialize by 2025, according to Musk’s insights.
The cautionary stance comes on the heels of Tesla’s first double miss since 2019. While the Q3 revenue reached an impressive $23.35 billion, reflecting a 9% year-over-year expansion, it fell short of the market consensus of $24.38 billion. The earnings per share (EPS) experienced a notable dip of 37%, recording $0.66 compared to the projected $0.73.
In the face of economic headwinds exacerbated by high interest rates and a tight consumer spending environment, Tesla has strategically adjusted its pricing to maintain consumer accessibility. However, this manoeuvre has led to a margin squeeze, presenting formidable challenges for the company.
As the Cybertruck’s launch approaches, Tesla navigates a complex landscape, balancing innovation, production challenges, and market dynamics. The journey ahead holds both excitement and uncertainty for this trailblazing company.
Technical
On the 1D chart, a descending channel has formed, with the price recently breaking through the 50-SMA (blue line) and threatening to do the same to the 100-SMA (orange line), which is close to the dynamic resistance of the channel. With tomorrow’s event likely a pivotal one, there could be a directional breakout on the cards.
The first potential hurdle to the breakout is the resistance at $260.15. At this level, a retracement could be enforced to retest the breakout level. However, a large volume breakout from the channel could result in this level being exceeded, bringing the supply zone at $278.91 into play. This psychological level could require large volumes to enforce a sustainable move toward its estimated fair value of $299.73, which presents a 22% potential upside from current levels.
Alternatively, if the market fails to exceed the 100-SMA at $246.15, the channel pattern could continue, with a pullback likely looking for support at $226.40, the Fibonacci midpoint. In this case, the price could fall back below the 50-SMA, confirming the presence of bearish momentum, with lower support established at $209.02 if the channel pattern sustains in the longer term.
Fundamental
Over the last year, Tesla’s shares have tracked the Nasdaq 100 with a pretty similar return, albeit with much more volatility. Overall, the 39% return over the last twelve months remains healthy, but its latest earnings report signals the struggles that the company continues to face. Apart from the slowdown in revenue growth and contracting margins, the company faces an ongoing worker’s strike in Sweden, which may halt the rollout of new vehicles in that region. In October, a worker’s union representing Tesla mechanics commenced a strike against the company for bargaining agreements, which is a foundational aspect of the Swedish labour market. As a result, dockworkers are refusing to offload Tesla vehicles, cleaning staff are refusing to clean the Tesla buildings, and electricians have stopped their service and repair work. This could result in a pileup of logistical issues as the unionization efforts spread, adding another headwind to the company’s ongoing challenges.
Tesla’s revenue growth rate has stagnated significantly since 2021, when the company racked up year-over-year growth rates close to 100%. As seen in the graph below, this growth rate now sits at a mere 8.84%, fuelling investor concerns about its growth prospects in the future. Similarly, its gross profit has fallen into contractionary territory, with the latest quarter seeing a 22.37% reduction in its gross profit from the year-ago period. This paints a concerning picture for the company, considering Tesla is classified as a growth company while struggling to find a solution to its dwindling growth rates.
The slowdown in demand was reflected in the company’s delivery numbers, which contracted from 466,140 in Q2 to 435,039. In order to inject some volume into its operations, Tesla was forced to engage in multiple price cuts over the course of the year. The effect of these cuts on the company’s margins is evident in the graph below. Its gross profit has stumbled from 29% in 2022 to 17.89%, with its Net Income margin (7.94%) and EBIT margin (7.55%) showing similar declines as input costs remain high. However, with inflation starting to show signs of cooling down and the market sentiment indicating that the Federal Reserve has concluded its current hiking cycle, there could be some upside ahead if the company can successfully enforce a margin recovery.
Summary
Tesla looks ahead to the highly anticipated launch of its Cybertruck tomorrow. While no details on the price or key specs have been revealed, it is a pivotal event in the company’s path to sustainable growth. Its estimated fair value is currently at $299.73, offering a 22% potential upside from its current price.
Sources: Koyfin, Tradingview, Reuters, Tesla, Inc.
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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