Tesla falls as investors adjust to new margins realities
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Tesla (NASDAQ:TSLA) fell in early trading on Thursday as investors eyed the sizable drop in margins in Q3, both sequentially and from a year ago. The electric vehicle maker saw margins decline during the quarter due to lower model prices, and operating expense pressure from scaling up factories and increased AI spending. The read-through was that the margin pain may not be over yet.
On the earnings call, Tesla (TSLA) said the Austin-based company is laying the groundwork for new Gigafactory in Mexico. Elon Musk delved into general concerns about the impact that high interest rates will have on the ability of people to purchase cars. He also warned that it will take a year to 18 months for the Cybertruck to be cash flow positive.
Morgan Stanley analyst Adam Jonas said it is hard to look past the drop in margin for the electric vehicle maker, even if expectations were built in. Jonas noted the sharp decline in margins in both absolute and relative terms. Q3 operating profit margins fell to the lowest level since the first half of 2020 and declined 64% year-over-year on an ex-ZEV basis, despite revenue being up 9%.
Wedbush Securities analyst Dan Ives said that in the near-term there are clearly challenges to navigate as the margin vs. volumes story is a tight balancing act for the Street with patience wearing very thin. The firm kept an Outperform rating on TSLA, but lowered its price target to $310 from $350.
Bank of America reiterated a Neutral rating on Tesla (TSLA). Analyst John Murphy and team balanced near-term risks from the broader macro, increasing competition, and the impact of recent price cuts against its efforts to reduce costs, meaningfully grow, and unique ability to remain agile.
On Seeking Alpha, analyst Ahan Vashi advised that with Tesla (TSLA) looking to be stuck in a vicious pricing cycle, long-term investors should hold out for a better entry point to initiate or increase bullish positions.
Shares of Tesla (TSLA) declined 5.07% in premarket trading to $230.58 after shedding 4.78% on Wednesday. That puts the EV stock back to where it was swapping hands in early June. The 52-week high for Tesla is $299.29.

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