Deutsche sees no Tesla growth until 2026
Bank cautious on the Musk-led firm’s short-term future
Market leader Tesla is “between two high growth periods” and may not see material rises in earnings or valuation until 2026, according to analysts at Germany’s Deutsche Bank after a meeting with Tesla executives.
“The last five years was a high growth period based on Model 3 and Model Y. This is mostly maxed out or reaching full potential on a global basis,” Deutsche’s lead automotive analyst Emanuel Rosner tells Yahoo Finance. “The next great growth spur will come from the next generation vehicle, which is probably a little while away.”
And Rosner further cautions that Tesla has not committed to when the next generation will come or what segment it will enter. It is heavily rumoured, though, that Tesla is eyeing the production of a c.$25,000 EV in the B or C segment which, if delivered as promised, could draw mass market share.
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But this is at least a couple of years away, and Rosner tempers expectations. “Right now, we are somewhere in the middle [of mass-market launches] and that essentially means lower growth,” he says.
“There is downside risk for investor expectations for volume. Next year the Street is calling for about 2.2-2.3mn units of Tesla vehicles being delivered. We are closer to 2.1mn, and potentially a downside of 2mn units once Tesla guides in early 2024,” Rosner explains.
“The other corollary is that there may be somewhat less operating leverage as a result. If you do not have that much volume growth, you are also not going to have that much earnings growth.”
Deutsche believes that the company could eventually rewards patient investors, but it will depend on the market holding its nerve. “What happens to the stock will depend on what happens to the multiple. If investors are patient and want to wait for the next generation vehicle […] then the multiple will still be high and the stock will continue to be okay,” Rosner predicts.
“If people figure out, ‘this is too far out to wait and this may not happen until 2026, right now there is no earnings growth,’… there could be some pressure on what is effectively a very high multiple and that would then be downside risk in the near term.”
Rosner leans towards the former scenario, as Deutsche “thinks the longer-term story is really compelling” for Tesla stock.
Tesla has been uncharacteristically openly downbeat about the progress of the much-anticipated Cybertruck. Considering the company’s usually tight-lipped nature, CEO Elon Musk’s candour about the struggles the company is facing in the vehicle’s production ramp seems like a deliberate attempt by the ultra-bullish CEO to set expectations low.
The Cybertruck is set for a “slow, painful, expensive ramp”, agrees Rosner. “This is going to be a loss-making vehicle for them for at least the first 18 months.”
And he warns that Cybertruck will be negative both in terms of profitability as well as generating negative free cash flow. The anticipated wait for the next mass-market vehicle also lays bare that Deutsche does not expect Cybertruck to sell anywhere closer to the volumes that Musk has been discussing in terms of product reservations.
Rosner sees annual Cybertruck volumes only eventually hitting around 250,000. And he emphasises that it is a non-core “pet project”.
“It is important for investors to understand that we are in this low growth period for Tesla, probably for the next couple of years,” the Deutsche analyst reiterates.