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Tesla Model Y electric cars stand at the company’s factory in Germany last year.
Sean Gallup/Getty Images
Tesla
is due to report its third-quarter deliveries in a couple of days, and while Wall Street estimates of the number are coming down, they might not falling fast or far enough. Investors need to be ready for a low number.
It isn’t unusual for estimates of deliveries to fall in the weeks leading up to the end of a quarter. They usually drop by a few percent compared with what analysts projected at the beginning of a quarter.
A few weeks ago, Wall Street was projecting Tesla (ticker: TSLA) would deliver 473,000 units for the third quarter. Now the consensus view among analysts tracked by FactSet is 2.5% lower, at 461,000 units.
But New Street Research analyst Pierre Feragu expects 438,000 units, about 5% below the current consensus call. “Factory shutdowns to drive material miss,” he wrote in a Friday research report.
A result of 438,000 cars would be down about 6% from the 466,000 units delivered in the second quarter, but up about 27% from about 344,000 units delivered in the third quarter of 2022.
Tesla took some planned downtime in the third quarter to update equipment at its factories, which meant less production. Tesla also introduced an updated Model 3 in China and Europe, which has pressured sales of the older Model 3 sedans. Car buyers are opting for the newer version, which begins shipping in days.
A big shortfall wouldn’t necessarily be a disaster for the stock. “We believe the miss is well anticipated by both the buy side and retail influencers,” Feragu wrote.
The buy side refers to institutional investors that manage money and “buy” Wall Street research. As for retail, more than 40% of Tesla stock is held by smaller investors, outside of large mutual funds and hedge funds. Retail investors hold closer to 20% of shares in other large tech stocks.
One implication of high retail ownership of a company’s stock is that institutional investors need to pay attention to the little guy. One source that retail investors rely on is X user Troy Teslike, whose tweets frequently are cited by Wall Street analysts. His third-quarter delivery estimate is 442,000 units, close to Ferragu’s number.
That lower estimate from Teslike is one reason Ferragu isn’t too worried. He doesn’t expect the delivery number to be positive for the stock, though. “Overall, the situation appears stable,” said Ferragu, and “our thesis is unchanged.”
He sees Tesla’s sales volumes growing about 50% a year on average for the coming few years. He predicts that the company will lift gross profit margins in its car business back to 25%, recovering from a decline this year that resulted from Tesla’s price cuts. Gross profit margins in the second quarter were about 18%.
Ferragu rates Tesla stock at Buy. His target for the stock price is $350.
Overall, about 41% of analysts covering Tesla stock rate shares at Buy, while the average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average price target is about $259 a share.
Tesla stock was down about 1.7% at $240.79 in premarket trading Monday.
S&P 500
and
Nasdaq Composite
futures were both down 0.4%.
Tesla stock has been weak since delivery estimates began falling. Shares fell 11% this past week.
Write to Al Root at allen.root@dowjones.com