Tesla Stock Dips Despite Earnings Beat: What Wall Street Analysts Are Saying

October 26, 2023

Tesla (TSLA) shares are facing downward pressure, even after the electric vehicle giant reported third-quarter earnings that surpassed analyst expectations. While the company delivered better-than-expected adjusted earnings per share and revenue, concerns surrounding its significant investments in emerging technologies and a year-to-date stock decline are tempering investor enthusiasm.

Quarterly Performance Overview

For the quarter ending September 30, Tesla announced adjusted earnings of 48 cents per share, exceeding the LSEG consensus estimate of 43 cents. Revenue for the period reached $28.05 billion, slightly above the Street's consensus of $27.9 billion. However, despite these top-line and bottom-line beats, the stock was down approximately 4% in premarket trading on Thursday.

Analyst Reactions and Concerns

Wall Street analysts remain divided on Tesla's outlook. A key point of concern is the company's substantial allocation of resources towards ambitious, long-term projects such as the Optimus humanoid robot and its robotaxi fleet. While these ventures hold future potential, they are not yet significant revenue drivers.

Furthermore, Tesla's core business segments experienced a year-over-year revenue decline in the third quarter. The automotive business saw a 3% decrease in revenue, while energy revenue dropped by 16% to $2.88 billion.

Key Analyst Insights:

• William Blair (Jed Dorsheimer): "Elon Musk tempered expectations on the Optimus ramp-up expectations and Robotaxi tangible revenue impacts for a year, weighing on the stock, which traded lower after hours." Dorsheimer, who holds a Market Perform rating, emphasized that understanding the pace and economics of Robotaxi and Optimus will continue to influence valuation. He also noted the potential for a SpaceX-Tesla merger to drive value.
• Deutsche Bank: Reiterated a 'Buy' rating, expressing a constructive view on Tesla's results.
• Canaccord Genuity: Also maintained a 'Buy' rating and raised its price target to $442 from $410, signaling potential for a 14% gain.
• Goldman Sachs (Neutral): With a price target of $360 (implying 7% downside), Goldman Sachs anticipates near- to medium-term pressure on profitability and free cash flow due to higher operating and capital expenditures. They also cited increasing competition in EVs, AVs, energy, and robotics as limiting factors for EPS improvement.
• HSBC (Reduce): Set a price target of $157, indicating a 60% downside. HSBC pointed to soft reported growth rates despite management's optimism about future acceleration.
• Truist (Hold): Maintained a price target of $370. Truist highlighted Tesla's ongoing transition from autos to AI, noting that increased operating expenses for AI projects (FSD, Robotaxi, Cybercab, Optimus, Cortex, and Terafab) impacted operating margins, though these investments are expected to drive future AI transition.
• JPMorgan (Neutral): Focused on capital expenditures, noting the reduction in 2026 guidance to ~$20 billion from ~$25 billion+ due to capital efficiency. However, they anticipate a further ramp in 2027 and 2028 to fund robotaxi, Optimus, and AI compute initiatives.
• Barclays (Equal Weight): Questioned the path to unlocking growth, noting investor reactions to the reduced 2026 capex guidance. While Tesla framed the cut as efficiency gains, Barclays acknowledged some bears might see it as a production ramp slip.
• Morgan Stanley (Equal Weight): Raised its price target to $410 from $400. The firm expressed increased confidence in fleet size estimates through 2027, citing progress in unsupervised miles, fleet density, and safety performance.
• Canaccord Genuity (Buy): Updated their model to reflect higher vehicle deliveries and energy storage margins. They applied a higher multiple to their 2028 non-GAAP EPS forecast, leading to a price target of $442, justifying the premium by Tesla's long-term growth opportunities in EVs, robotics, and energy storage.
• Deutsche Bank (Buy): Highlighted strong demand for Megapacks driven by data center expansions and grid constraints, with Tesla nearly sold out for 2027. They noted management's expectation of significantly increased energy gross margins.

Future Outlook

The market appears to be weighing the short-term revenue pressures and substantial R&D investments against Tesla's long-term vision in AI, robotics, and autonomous driving. The company's ability to successfully monetize its emerging technologies and navigate increasing competition will be critical factors in its future stock performance.