‘There’s a method to the madness,’ analyst says

There is a tug of war between Tesla (TSLA) bulls and bears on Wall Street.

Tesla reported a third-quarter profit decline but a sales slump, reflecting concerns from some that demand for its premium electric vehicles could fall somewhat.

Tesla bulls claim that CEO Elon Musk said challenges in physically delivering vehicles to customers are a key bottleneck — and why the number of cars produced in the third quarter was significantly higher than deliveries.

“Actually, we’re just running out of resources — there weren’t enough boats, there weren’t enough trains, there weren’t enough car carriers to actually support the wave because it was getting too big,” Musk said on the result call. “Like it or not, we have to smooth out the delivery of cars within the quarter because there aren’t enough transport objects to move them.”

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At the same time, Musk warned of demand problems stemming from headwinds in China’s housing market, Europe amid an energy-related recession and the impact of the Fed’s tightening cycle on the US economy.

Hong Kong, China, 13th September 2022, A red Tesla car drives past in front of a Tesla dealership in Wanchai.  (Photo by Marc Fernandes/NurPhoto via Getty Images)

Hong Kong, China, 13th September 2022, A red Tesla car drives past in front of a Tesla dealership in Wanchai. (Photo by Marc Fernandes/NurPhoto via Getty Images)

“There’s a bit of duplicity,” George Gianarikas, managing director of Canaccord Genuity, told Yahoo Finance. “Elon Musk acknowledged that there was a demand issue, particularly in China…but at the same time he said the company will grow significantly in the fourth quarter.”

“There is a method to madness and there is a logic to why [Musk] has made them grow so much this year and continue to grow next year, but I totally agree and understand that there are too many breadcrumbs to suggest there has been a slowdown in demand, and he even admitted that on yesterday’s conference call,” Gianarikas said.

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On the plus side, Gianarikas believes the backlog, demand for new electric vehicles in general, fleet sales and upcoming production of the Cybertruck in 2023, as well as more Tesla Semi sales will boost Tesla in the near future despite some economic uncertainties.

“We think they could do around 450,000 deliveries [in Q4]; They will sell as many cars as they can build for the foreseeable future, which is about 50% annual growth as fast as the eye can see,” said Gianarikas of the Canaccord team’s forecast for Tesla’s performance.

Another area of ​​future development for Tesla that’s exciting Gianarikas for growth is what Musk called the “next-generation” vehicle, which would be smaller and cost Tesla 50% of what the Model 3/Y platform to build needed. That vehicle would likely be the “robotaxi” Musk has mentioned in the past.

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“On the Robotaxi platform, it’s a really interesting question – the ability of the company to lower the cost of production per vehicle – they’ve done a really great job on the Model 3/Model Y platform, which costs around the 30,000 range ‘ says Gianarikas. “When it comes to Robotaxi, that’s another reduction in production costs… it’s another platform through which the company can reduce costs and help EVs become more widespread around the world.”

Pras Subramanian is a reporter for Yahoo Finance. you can follow him Twitter and further Instagram.

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