Tesla Inc. TSLA stock's weakness is due to a confluence of factors, New Street Research analyst Pierre Ferragu said on Thursday.
The Pushbacks: Tesla shares have lost over 50% in the year-to-date period, underperforming the broader market and the tech sector.
About two-thirds of the weakness has to do with the broader correction of long-duration growth names, Ferragu said. To prove his point, he shared the screenshot of the year-to-date performances of Tesla, Amazon Inc. AMZN and Nvidia Corporation NVDA shares.
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Ferragu also underlined Twitter-related concerns, including the necessity for CEO Elon Musk to sell more shares, happenings at Twitter affecting the Tesla brand, and a distracted Musk.
Ferragu also noted demand concerns, as reflected by the rumored production cuts at the Giga Shanghai plant, a tough near term in the U.S. as buyers wait for the 2023 subsidy and the impact of the company’s successive price cuts on margins.
Reports of Musk stepping down as CEO may have engendered some of the weakness, Ferragu added.
An economic downturn could be a dampener, as the analyst sees a 10-15 basis point reduction in delivery growth in 2023 and a few basis points of impact on gross margins.
Analyst Not Too Concerned: Ferragu noted that the Twitter burn could be currently in the $2 billion to $3 billion range on an annualized note and this could improve fast. The analyst noted that Twitter could also refinance $3 billion of its high-interest debt, all obviating the need for stock sale by Musk.
Twitter’s impact on the Tesla brand could be minimal and is unlikely to impact “hardcore” fans, who are most of the stock buyers today, Ferragu added.
Musk’s distraction, according to the analyst, should not be a concern as the billionaire has been simultaneously leading Tesla, SpaceX, Boring Company, Neuralink and Open AI.
Tesla is addressing near-term demand slowdown in the U.S. by offering a temporary discount, the analyst said. This will likely cost a point of gross margin in the December quarter, Ferragu added. Tesla has the cost trajectory to implement price cuts without impacting gross margins, he said.
On the succession plan, the analyst said Musk will likely be a "low-touch CEO" going forward and Tesla China President Tom Zhu will likely manage all global operations. Tech and product teams will still report to Musk, Ferragu added.
The economic downturn, though will likely crush and bring incumbent manufacturers to near bankruptcy, and would be a competitive accelerator for Tesla, the analyst said.
Price Action: In premarket trading on Friday, Tesla shares were down 0.13%, at $173.23, according to Benzinga Pro data.
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