Tesla stock has a way of defying expectations, and December is no exception. The shares are rising while some key Wall Street estimates are falling.
Falling estimates typically don’t help stock prices, so investors should ask themselves what’s going on.
Tesla shares gained 2% on Tuesday, while the S&P 500 and Nasdaq Composite rose 0.6% and 0.7%, respectively. The gain puts Tesla stock up about 7% for the month, about two percentage point better than the Nasdaq.
Despite the solid performance so far this month, some issues are bubbling below the surface. The main one is Wall Street estimates are coming down. Analysts now expect fourth-quarter deliveries of about 473,000 units, according to FactSet, down from an estimate of about 490,000 units entering the fourth quarter.
In addition, the consensus call for Tesla’s 2024 deliveries is now about 2.1 million, down from about 2.3 million over the same span. The consensus call for 2024 earnings is now $3.85 a share, compared with $4.67 a share a couple of months ago.
Falling estimates are usually a headwind for stocks, unless analysts and investors believed estimates were too high. That appears to be part of the story with Tesla’s recent stock price performance. RBC analyst Tom Narayan wrote Monday that Tesla’s 2024 sales estimates were now “de-risked.”
He lowered his 2024 unit sales estimate to 2.1 million units from 2.3 million units. He also cut his target price by $1 to $300 a share. He rates Tesla stock Buy.
The target price cut is small because he isn’t all that concerned with one year’s numbers. Narayan’s $900 billion-plus valuation for Tesla stock is based mostly on self-driving technology, he writes.
De-risked numbers are one reason for shares to be moving higher, but there are a couple others. For starters, Tesla’s Chinese sales have been strong lately. Wall Street tracks weekly insurance registrations in China to get a sense of how many vehicles Tesla will sell there in a given quarter. Tesla doesn’t report monthly sales volumes or sales volumes by geography.
Data show Tesla had sold some 140,000 units in China through the end of this past week—that puts the company on pace to set a quarterly record of roughly 165,000. Tesla sold about 156,000 units in China during the second quarter of 2023, according to numbers from Chinese industry associations.
Strong Chinese results typically help Tesla stock. They matter a little more recently since Tesla is now selling its upgraded Model 3 in China. Strong demand for the refreshed car is a good sign for 2024 sales of Model 3 vehicles.
And some factors behind the stock gains don’t have anything to do with Tesla specifically. Federal Reserve officials expect to cut interest rates three or four times in 2024. Lower rates mean lower monthly car payments, which will put less pressure on auto makers to cut prices. That’s something all auto investors will welcome in 2024.
Stock prices always reflect a lot of information, including company-specific factors, stock market factors, and economic factors such as expectations about interest rates. Investors should follow all the issues to make their best assessment about where any stock is headed over short- and medium-term time horizons.
Right now, the balance of factors is pushing Tesla stock higher. The shares have climbed more than 80% over the past 12 months. It has been a good year for Tesla shareholders.
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