Tesla, the renowned electric vehicle (EV) manufacturer, experienced a significant drop in its share price, falling by approximately 5% on Monday. The decline was triggered by a battery warning from Panasonic, a long-standing partner and supplier of battery cells to Tesla. This news has raised concerns about sluggish demand for electric vehicles, particularly higher-priced models that may not qualify for government incentives or tax breaks. Additionally, Tesla’s ongoing efforts to keep prices competitive amidst rising interest rates have added pressure on the company. Let’s delve into the details surrounding this development and its potential implications for the EV market.
Panasonic’s Reduced Battery Cell Production
Panasonic’s recent updates revealed a reduction in battery cell production in Japan during the period ending September 2023. This announcement has raised investor concerns regarding the demand for electric vehicles, especially for Tesla’s older and higher-priced models, such as the Model X SUVs and Model S sedans. These vehicles have relied on Panasonic cells in their battery systems.
Tesla’s Challenges and Cautionary Statements
During Tesla’s third-quarter earnings call on October 18, CEO Elon Musk highlighted the pressure caused by interest rates, emphasizing the need to keep EV prices low. Musk expressed concerns about the impact of interest rates on consumers’ ability to purchase or lease electric vehicles. He also shared cautious remarks regarding the company’s highly anticipated Cybertruck, acknowledging financial challenges and predicting a significant positive cash flow contribution only after a year to 18 months.
Share Price Performance and Short Sellers’ Gains
Since the earnings call, Tesla’s shares have plummeted by over 18%. This decline has resulted in short sellers profiting more than $3 billion, according to data from Ortex, a financial information services company. Short interest in Tesla currently stands at around $18.08 billion or 3.21% of free float, as of October 27.
Analysts’ Bearish Outlook
Bernstein, a prominent financial firm, published a note expressing a bearish view on Tesla. They anticipate lower margins and disappointments in volumes for fiscal year 2024. With a current price target of $150 on Tesla shares, Bernstein projects 2.15 million deliveries and earnings per share of $2.59 for the next year, compared to the consensus of 2.3 million deliveries and earnings per share of $3.30. The firm raises concerns about Tesla’s ability to drive growth while cutting prices and maintaining overall operating margins.
The negative sentiment surrounding Tesla appears to be affecting other parts of the electric vehicle market. For instance, shares of ON Semiconductor, a chip supplier for EVs, experienced a 20% decline after the company provided disappointing Q4 guidance. This trend suggests that concerns about EV demand extend beyond Tesla alone.