JPM sees risk of further negative earnings revisions for Tesla

Following Tesla’s (NASDAQ:) first-quarter 2024 results, JPMorgan has raised concerns over the possibility of additional negative earnings revisions and ongoing multiple compression for the electric vehicle giant.

The earnings report showed softer performance than anticipated, with revenue for the quarter totaling $21.3 billion, slightly below JPMorgan’s estimate of $21.4 billion. However, this figure fell notably short of the Bloomberg consensus of $22.3 billion, which had progressively declined from $25.7 billion following the fourth-quarter 2023 results. Similarly, Tesla’s EBIT (earnings before interest and taxes) of $1.578 billion in the first quarter missed consensus expectations of $1.734 billion, which had been revised downward from $2.320 billion after the previous quarter’s results.

The most concerning metric highlighted by JPMorgan was Tesla’s free cash flow, which plunged to -$2.531 billion in the first quarter, significantly worse than JPMorgan’s estimate of -$1.306 billion and even further from the company-compiled consensus of -$406 million. This steep decline was attributed to a record accumulation of unsold vehicles, with Tesla producing approximately 47,000 more vehicles than it managed to sell in the first quarter of 2024. This surplus inventory came despite ongoing price reductions aimed at stimulating demand amid intensifying competition and a slower-than-expected industry-wide transition from traditional internal combustion engines to battery-powered vehicles.

JPMorgan acknowledged that Tesla shares could experience a short-term reprieve from downward pressure on earnings expectations, thanks to renewed focus on autonomous robo-taxis and Tesla’s recent announcement that certain new product launches originally slated for the second half of 2025 would be accelerated to reignite growth.

However, the investment bank cautioned against sustained optimism, expressing doubt about Tesla’s ability to maintain its current lofty valuation over the long term. JPMorgan suggested that as investors assimilate the implications of these revised near-term expectations for Tesla’s future growth trajectory, the company’s shares may struggle to justify their current valuation levels in the eyes of the market.