This Analyst Issues Sell Call On Tesla: Flags Demand Problems, Falling ASPs, And Margins

GLJ Research analyst Gordon L. Johnson II had a Sell rating on Tesla, Inc TSLA.

The analyst does not see Tesla any longer growing at its 50% a year "mirage" without a much cheaper car it will not have for years in a best-case scenario, and its Q3 results are also shaping up to be a big disappointment.

With Q3 cuts to list prices in the USA, China, Japan, and for the company's full-self-drive vaporware, as well as the analyst's observation that TSLA is increasingly selling units from inventory at discounted prices, it is his view that in addition to a ~1% incremental headwind to ASPs in Q3 quarter-over-quarter from list prices, there may be an additional ~1%-2% QoQ hit from inventory discounting. 

The upshot is that TSLA's reported Q3 ASPs may be down 2%-3% sequentially, more than the -2.0% he modeled. 

According to the analysts' Q3 delivery estimate of 442K vs. Consensus' current 463K estimate, a slew of negative earnings revisions are on tap for TSLA over the coming 2-to-3 weeks. 

TSLA has a demand problem known about for some time – in its three largest markets: the U.S., the EU, and China. And, how anyone who cares to look knows TSLA has known about this issue for some time rests with the fact that the company has tried to mask this headwind with deep/unprecedented price cuts. 

Yet, even with its aggressive price cuts, it seems TSLA has still reached the widely feared (if one is a TSLA bull) "saturation" point, meaning it can no longer grow at the 50%/year "mirage" it has guided Wall Street to, for years to come looking forward, barring a much cheaper car that TSLA will not have for a few years in a best-case scenario.

The analyst is currently assuming Q3 U.S., EU, China, Canada, and RoW sales of 159.6K, 86.8K, 151.9K, 10.1K, and 33.6K, or 442K in total, down from 466.140K in 2Q23 (or -5.2% QoQ), meaning TSLA has officially gone ex-growth on unit sales, despite aggressive price cutting, for months now, in an attempt to conceal this dynamic.

The analysts suggest TSLA's margins will fall further as price cuts and underutilized capacity flow through the model. He believes the YTD rally is simply unjustifiable. 

Finally, while recent views of TSLA as an AI company could be the reason for the boost in sentiment, with 98% of TSLA's 2Q23 gross profit coming from selling cars, the analyst does not see this excitement as financially material.

The analyst model TSLA's ASPs fell from $45.96K/car in 2Q23 to $45.03K/car in 3Q23E. 

He anticipates TSLA's deliveries at 442K in 3Q23E, down from 466.140K in 2Q23. Based on these estimates, his 3Q23E revenue and adjusted EPS estimates adjust to $23.6 billion and $0.69 (Street $25.1 billion and $0.81). 

Price Action: TSLA shares traded higher by 0.52% at $266.66 on the last check Tuesday.