Musk’s cautious tone hits Tesla shares

Tesla, one of the so-called magnificent seven stocks that have driven 2023′s US market rally, disappointed investors last week when it reported earnings.

Shares have soared this year even as earnings estimates plunged following aggressive price cuts by Tesla. Investor patience is not limitless, however. Shares have underperformed in recent months and the sell-off accelerated after Tesla missed earnings and revenue estimates.

Falling profit margins are a particular concern, with operating margins falling to 7.6 per cent – down almost 10 percentage points from a year ago. Tesla’s current profit margins are in line with industry averages, but it’s not priced like a car maker – it’s priced like a tech stock.

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Valuation concerns are old hat to Tesla bulls at this stage, but Elon Musk’s cautious tone regarding rising rates hitting consumer demand will have unsettled some.

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More notably, Musk was uncharacteristically cautious about the outlook for Tesla’s long-delayed Cybertruck, saying “enormous challenges” lay ahead and that he wanted to “temper expectations” – surprising words from a man not usually given to underpromising.