Wells Fargo cuts price target on Tesla ahead of 3Q earnings report

Wells Fargo reiterated an Equal Weight rating on Tesla Inc (NASDAQ:TSLA) and cut their 12-month price target on the stock to $260.00 (From $265.00) ahead of the electric automaker’s 3Q report scheduled for October 18th.

The company announced third-quarter deliveries of 435,000 vehicles, which fell approximately 20,000 units short of the consensus estimate. Management attributed this shortfall to plant downtime during the Model 3 refresh.

Wells Fargo predicts that as a result of these lower delivery volumes and ongoing price reductions, the automotive gross margin (excluding credits) for the third quarter is expected to be 16.3%, compared to the consensus estimate of 17.9%.

Furthermore, Wells Fargo anticipates that third-quarter average pricing will decrease by 20% from its highest levels, and the automotive gross profit per unit (excluding electric vehicle credits) will be halved compared to its peak.

To achieve 1.8 million deliveries in the fiscal year 2023, TSLA will need to deliver around 475,000 units in the 4Q, requiring the near-maximum utilization of its global production capacity. While the refreshes for the Model 3 and Model Y, as well as the potential rollout of the Cybertruck with reportedly 1.9 million preorders, could stimulate demand, Wells Fargo analysts have reservations about whether these factors alone will be sufficient.

“We see higher near-term delivery growth driven by recent price cuts. However, we are cautious on hitting margin targets, and we see the risk of more price cuts later in the year,” wrote the analysts in a note.

Wells Fargo lowered 2023 EPS estimates from $3.20 to $2.95 to reflect price cuts and lower deliveries. 2024 estimates were cut from $3.55 to $3.25, 2025 estimates from $3.75 to $3.60, and 2026 estimates from $4.30 to $4.20 on lower pricing.

Shares of TSLA are down 1.82% in premarket trading Monday morning.