Tesla Stock Could Be In For More Downside As 'Margin-Destroying' Price Cuts Not Producing Intended Effect, Says Analyst

Tesla, Inc. (NASDAQ:TSLA) bear Gordon Johnson weighed in on the recent delivery data from China and Europe and gave a dire prognosis for the electric vehicle maker's stock.

What Happened: Tesla stock will likely come under intense selling pressure, said GLJ Research's Johnson in a note released Tuesday.

Tesla has implemented many price cuts in China since 2020 and offered steep discounts on inventory vehicles, the analyst said. Tesla is engaged in “margin-destroying” price cuts and yet is on track to report a quarter-over-quarter decline in volume in the third quarter, he added.

Tesla sold 466,140 cars globally in the second quarter, with made-in-China sales, including domestic sales and exports, coming in at 247,217 units.

Johnson expects a downward revision to consensus estimates, reflecting the ongoing price cuts. The current consensus estimate calls for a sequential increase in gross margin despite the expected decline in third-quarter deliveries.

Tesla benefitted from a temporary auto parts shortage, and that is now behind us, said the analyst. "The company's margins are regressing to the mean, (which appear to be break-even, or in the case of its China production negative)," he added.

“This dynamic is not well understood by the Street … yet.”

See Also: Everything You Need To Know About Tesla Stock

Why It's Important: Tesla stock ended Tuesday's session at $256.49, a gain of 4.69%, according to Benzinga Pro data. Despite the rally, the stock is still way off its pre-earnings level of $291.26.

The lackluster showing since the earnings report is blamed on a lack of clarity on the margin outlook. To make matters worse, CEO Elon Musk said the rising rate environment could necessitate more price cuts.

In line with Musk's thinking, the company has continued to slash prices across geographies, which has come in the form of configurator price cuts and discounted inventory pricing.

The company has guided to full-year deliveries of 1.8 million units and its first half deliveries amount to 889,015 units. In order to hit the target, the company should deliver 910,985 units in the second half of the year.

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