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Tesla’s results, and what Elon Musk had to say about them, have raised concern about the state of the economy, dragging down stocks across the auto industry.
Tesla’s first-quarter gross profit margins, reported Wednesday evening, disappointed investors, coming in below 20%. And Musk mentioned high interest rates, vehicle affordability, or the economy about 10 times on the company’s earnings conference call.
“The recession scenario is on,” wrote New Street Research analyst Pierre Ferragu in a Thursday report. “Demand remains above supply, but at the cost of a string of price cuts, reacting to a steep drop in auto demand in China and multiple signs of weakness across the world.”
Ferragu rates
stock (ticker: TSLA) at Buy. He cut his target for the price to $300 from $320 a share.
Investors know things are slowing down, but they don’t like to hear it from the CEO of the world’s more valuable car company. Musk also predicted “economic stormy weather” for about a year.
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Weakness into the middle of 2024 is definitely not what investors have been hoping for. The possibility that Tesla could keep cutting prices to manage demand is another drag on the stock.
Shares were at $167.02, down $13.58, or 7.5%, in midday trading. The
and
were 0.5% and 0.6% lower, respectively.
If Tesla ended the day at $167.02, it would be the lowest final level since Jan. 30, when shares closed at $166.66. Shares are now down for three consecutive days, dropping more than 10% over that span.
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No auto maker can really take joy in seeing a competitor run into trouble. Pricing and the economy affect all of them too.
(F) and
(GM) shares were off 3.9% and 3.3%, respectively.
(STLA) stock was down 4.9%.
(VOW. Germany) shares are off 2.1% in overseas trading. Even
(TM) shares are off 1%.
Shares of Chinese EV maker
(1211. Hong Kong) lost 0.9% as Hong Kong’s
gained 0.1%. Shares of EV start ups
(RIVN) and
(LCID) were off 4% and 5.5%, respectively.
Not everyone is convinced that the economy is behind Tesla’s problems. “I’m not buying management’s narrative that a weak economy is causing Tesla’s volume issues,” said
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co-founder Gary Black. His fund holds Tesla shares.
He blames the price cuts. When customers see prices dropping, that encourages them to hang on, anticipating even lower prices. That might be a flaw in Tesla’s thinking. Pricing is “causing consumers to wait for still lower prices,” added Black.
It’s a small-scale version of the phenomenon that hobbled the Japanese economy for decades following the collapse of that country’s economic bubble in the 1990s. Declining prices encouraged shoppers to hold off, forcing companies to cut prices further.
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For a better sense of how the economy is affecting car sales, investors will have to wait until GM and Ford report their first-quarter results on April 25 and May 2, respectively. Those two might have a different view of what is happening.
Buckle up for a volatile earnings season.
Write to Al Root at allen.root@dowjones.com
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