Disappointing Q4 Will Drag Stock Lower, Gene Munster Says

  • Investors should avoid Tesla without delay, based on Deepwater Asset Management’s Gene Munster.
  • The EV maker’s shares rallied 7.7% Monday with Model Y price cuts juicing demand as techs rose.
  • But Munster expects Tesla to post disappointing profit numbers in its 4th quarter earnings Wednesday.

Investors should not be piling into Tesla stock just yet despite the recent rally for Elon Musk’s carmaker, Deepwater Asset Management’s Gene Munster has warned.

The electrical-vehicle maker’s shares climbed 7.7% Monday with price cuts for Tesla’s flagship Model Y automobile expected to supercharge demand. Which means the stock is now up just below 17% year-to-date.

But there may very well be a nasty shock for Tesla shareholders when the corporate releases its fourth-quarter earnings on Wednesday, Munster said.

“A part of this 8% move is anticipation and optimism that the 30% decrease in price for the Model Y goes to have an outsized impact on volume,” the Deepwater managing partner told CNBC’s “Fast Money” on Monday.

“I expect that to be true – but there’s one piece that we do not know, and that is about getting everyone on the identical page. It is the profit.”

Munster forecast that Tesla will log gross margins of between 15% and 20% in its key automotive division, down from 27% within the third quarter of 2022.

“I expect them to provide guidance somewhere between 15% and 20% – and that is the piece I believe will cause a dip in shares on Wednesday,” he said.

That potential dip is not driving Munster away from Tesla long-term. But he warned there’s more likely to be an adjustment period this yr, as investors reset their expectations for what the stock’s profit targets must be.

“Don’t let me provide you with a mixed message there – I believe this remains to be an excellent company,” he said. “We just should get everyone on the suitable page about what the profit profile looks like, because that is been a giant a part of the rise of Tesla shares over the past three years.”

Not all analysts are downbeat on Tesla’s prospects. Wedbush’s Dan Ives said last week the shares could rally 35% this yr as its recent price cuts have already been successful in China. 

Tesla’s fourth-quarter results will cover a period where it began slashing prices of a few of its best-known vehicles in a bid to juice up demand and CEO Elon Musk accomplished his chaotic $44 billion takeover of Twitter.

Wall Street analysts expect its gross profit margins to fall from 25.8% to 25.6% and for its earnings-per-share to climb from $0.95 to $1.01 quarter-on-quarter, based on Refinitiv.

Read more: Tesla stock could rally 35% as recent price cuts have already been an enormous success in China, Wedbush’s Dan Ives says

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