- Tesla reported lackluster earnings for the third quarter of 2022 on Wednesday.
- Some analysts question whether Tesla has enough demand to grow sales 50% each year.
After years of gangbusters sales and rocket-ship growth, Tesla is facing intense questions about whether demand for its vehicles is slowing.
If you ask Elon Musk, buyers around the world are still clamoring for every single Model 3, Y, S, and X the company can build. But disappointing third-quarter results have left some analysts wondering whether Tesla can keep growing sales at the pace Musk promises given obstacles like inflation, a slowing economy, and growing competition.
Tesla has reiterated numerous times the ambitious goal of increasing car sales by at least 50% annually for the foreseeable future. Earlier this year, Musk predicted that Tesla would ship out 1.5 million cars in 2022, a 60% jump over 2021, thanks to new factories in Texas and Germany.
Those bold targets came back to bite the Tesla CEO when the company reported lower-than-expected deliveries for the July-September period. During the quarter, Tesla produced roughly 22,000 more vehicles than it sold, raising questions about demand and sending shares tumbling.
Tesla blamed the shortfall on logistics snafus rather than an inability to find buyers and said it expects to come up short of the 50% goal this year. Musk said "there weren't enough boats, there weren't enough trains, there weren't enough car carriers" to transport new Teslas from factories to customers.
But the gap between cars produced and sold fueled doubts among some Wall Street analysts about Tesla's ability to continue meeting Musk's aggressive growth targets due to both demand and supply constraints.
"Tesla's awful quarter is the latest sign that growing macroeconomic uncertainty is having some impact on demand for its electric vehicles. The EV maker faces several near-term headwinds, including accelerating inflation, rising raw material prices, Covid lockdowns in China, as well as the ongoing global chip shortage, and various supply chain issues," said Jesse Cohen, a senior analyst at Investing.com.
Economists are increasingly convinced that the US is heading toward a recession.
In a note to investors, bearish JPMorgan analysts said they "remain cautious on valuation, particularly in the context of lofty unit volume growth expectations."
"We continue to see risk to guidance for +50% annual unit volume growth over time (in some years more, in some years less), including given higher prices, higher interest rates, an increasingly tapped-out consumer, and given the paucity of new model introductions," they added.
Even industry watchers normally optimistic about Tesla's prospects said the carmaker needs to convince investors that interest in its vehicles isn't flagging.
"The bullish narrative is clearly 'hitting a rough patch' as Tesla must now prove again to the Street that the robust growth story is running into a myriad of logistics issues as opposed to demand softening with EV competition coming all angles around the globe," Wedbush Securities analyst Dan Ives said in a note to investors.
Tesla is facing fiercer competition than ever before as experienced automakers flood the market with new electric models and startups mature. Even as it's accelerated its own sales, Tesla has been losing share of the electric market as EV sales ramp up globally.
Musk conceded that "demand is a little harder than it would otherwise be" due to "a recession of sorts" in China and Europe and rising interest rates in the US. Still, he projected optimism about Tesla's future.
"Knock on wood, it looks like we'll have an epic end of year," he said.