Tesla Shares Face Headwinds as Delivery Estimates Are Revised Downward

Tesla’s stock showed a notable recovery in Wednesday’s trading, clawing back some of its recent losses. This resilience comes despite a mounting collection of challenges facing the electric vehicle maker as it approaches the end of the quarter. A combination of regulatory scrutiny, reduced delivery forecasts, and intense competition paints a complex picture for investors.

Regulatory Probe Intensifies Around Driver-Assistance System

Adding to the pressure, the National Highway Traffic Safety Administration (NHTSA) has initiated a formal engineering analysis into Tesla’s Full Self-Driving (FSD) system. This investigation, covering approximately 3.2 million Model S, X, 3, Y, and Cybertruck vehicles, was prompted by reports of system failures in low-visibility conditions like fog or glaring sunlight.

The federal agency stated that in several reviewed crashes, the system failed to recognize common road scenarios and did not provide adequate warnings to drivers. Nine incidents are linked to the probe, including one fatal crash and two involving injuries. This marks the third concurrent federal investigation into FSD, with two others examining traffic violations and the company’s crash reporting practices.

Analyst Forecasts Signal Delivery Shortfall

All eyes are on Tesla’s first-quarter delivery figures, scheduled for release on April 2nd. Market experts at UBS, led by analyst Joseph Spak, have significantly lowered their projection. They now anticipate around 345,000 vehicle deliveries for Q1, which is roughly 7% below the broader market consensus of 371,000 units. The bank cites weakening consumer demand in critical markets like the United States and China as the primary reason.

Data from January and February supports this cautious outlook, showing approximately 78,600 deliveries—a 6% decrease compared to the same period last year. UBS maintains a “Sell” rating on the stock with a price target of $352, below current trading levels. Spak also highlighted growing investor skepticism regarding Tesla’s long-term dominance in autonomous vehicle technology, noting competitive pressure from Waymo and recent announcements from Nvidia are challenging the company’s robotaxi narrative.

Should investors sell immediately? Or is it worth buying Tesla?

Brand Strength and Market Position Erode

Beyond immediate delivery and regulatory concerns, Tesla is grappling with a softening brand image. A recent EV Intelligence Report indicates declining brand positivity and trust when measured against traditional automakers like Toyota and Honda. Notably, 14% of negative mentions related to FSD were directly associated with CEO Elon Musk.

The company’s full-year 2023 performance underscores these headwinds. Deliveries of 1.64 million vehicles represented an 8.6% year-over-year decline. This drop allowed China’s BYD to surpass Tesla in global sales volume for the first time.

Positive Indicators Emerge Amid Challenges

Not all signals are negative. Tesla’s gross margin saw improvement in the fourth quarter of 2023, rising to 20.1% from 16.3% a year earlier. Furthermore, the energy storage business is exhibiting robust growth. UBS forecasts Megapack deployments will reach 15.1 gigawatt-hours in Q1—a 45% year-over-year increase, driven by rising demand from grid infrastructure projects and AI data centers.

Investors will get a fuller picture when the company reports complete quarterly results on April 28th, where margin performance will be a key focus. The current Wall Street consensus sits at “Hold,” with 13 analysts recommending “Buy,” 11 advising “Neutral,” and seven issuing “Sell” recommendations.