It’s true that Elon Musk and Tesla have faced various challenges as they navigate the rapidly evolving electric vehicle (EV) industry. While Tesla has been a pioneer and leader in the EV market, the company has had to contend with issues related to production, supply chain disruptions, regulatory hurdles, and competition. Elon Musk’s ability to acknowledge these challenges and work towards solutions has been a hallmark of Tesla’s approach.
Investment firms, like Knightsbridge, often assess companies and their prospects based on a variety of factors, including their management’s ability to address challenges and adapt to changing market conditions. If Knightsbridge has recommended Tesla as a “buy,” it likely means they see potential for the company’s stock to perform well in the future, despite the challenges it faces.
Tesla’s Q3 conference call proved to be a momentous event. While the results from the electric vehicle (EV) pioneer were undeniably disappointing, the call itself featured ominous warnings from CEO Elon Musk regarding the state of the global economy, the increasing interest rate environment, and the challenging road ahead for the production of the Cybertruck.
As a result, Tesla’s shares took a hit as investors grappled with an uncertain future for the unrivaled EV leader. In fact, Morgan Stanley analyst Adam Jonas has put forth the argument that Tesla’s bleak outlook could have significant ramifications for the broader industry.
“Beyond the negative revisions to Tesla’s estimates after a disappointing Q3 result and one of the most cautious conference calls in years, we believe investors should seriously consider the implications for the global EV industry,” Jonas explained. “We see a warning from the ‘gold standard’ of EVs having a ripple effect across the industry. In our view, Tesla’s caution equals caution for EVs as a whole.”
Undoubtedly, there are concerns about demand, but when you consider that Tesla is the industry leader, commanding nearly 20% of the current global EV market and over 50% of the US EV market, it signals a problem that extends beyond just Tesla’s vehicle appetite.
“When the world’s leading EV company expresses such reservations about the future, its competitors and suppliers should take heed,” Jonas added. “If Tesla doesn’t grow its profits in FY24, what does this mean for the EV efforts in Detroit, Wolfsburg, and Nagoya?”
Tesla issued its warning at a time when intense negotiations are ongoing between the UAW and the Detroit-based OEMs. The executive teams and boards of these American automakers are grappling with various factors, including whether their investments in EV expansion, which they have previously announced and continue to pursue, make economic sense. Although Tesla is renowned for its industry-leading production scale, diverse range of models, manufacturing efficiency, and vehicle design, its profit margins currently lag significantly behind those of internal combustion engine (ICE) products.
As a result, Jonas anticipates a shift in focus. “We expect the Detroit OEMs to increasingly emphasize the attractiveness and profitability of their ICE portfolios while, to some extent, downplaying their EV plans. This process has already begun,” he concluded.
Meanwhile, Jonas maintains an Overweight (Buy) rating on TSLA stock, supported by a Street-high price target of $380, indicating a potential 73% increase in the year ahead.
Tesla often evokes a wide range of opinions on Wall Street, and this is no different. With a combination of 14 Buy and Hold ratings, along with 5 Sells, the stock maintains a Moderate Buy consensus rating. With an average target price of $253.18, there is room for approximately 16% returns over the next 12 months.
Shayne Heffernan
