The Impact of Tesla’s ‘Osborne Effect’ on Its Outlook

Unveiling a Sobering Perspective

Analysts Gene Munster and Brian Barker of Deepwater Asset Management have drawn attention to a key factor that may have contributed to Tesla’s (TSLA) announcement of a pronounced deceleration in unit volume growth this year – the possibility of the ‘Osborne Effect’ taking root.

Understanding the ‘Osborne Effect’

The ‘Osborne Effect’ is a sociological phenomenon where customers delay or cancel orders for a current product upon learning about a potential future product that could surpass it. In essence, it represents a form of sales cannibalization initiated by a company based on its product strategy.

According to Munster, Tesla’s revelation of an upcoming low-cost vehicle ($25K to $30K) possibly led to the adjustment in their growth forecast for 2024 in anticipation of the ‘Osborne Effect’ dampening demand for the Model 3. Notably, Tesla’s outlook lacked specifics on gross margin, Opex, or CapEx expectations. Munster forecasts a resurgence in Tesla’s growth story in the latter half of 2025 but cautions about the near-term potential for lackluster EV deliveries and a tepid market response.

Downsized Expectations and Projected Revisions

Initially, consensus projections indicated a 19% growth rate for Tesla in 2024, similar to its performance in the preceding year. However, after a flurry of analyst revisions following the earnings report, the Street now anticipates around 13% top-line growth for 2024. Munster suggests that this year’s growth could conclude at 10%, signaling a potential downside to current estimates. He opines that as the first quarter progresses, these estimates will likely diminish, resulting in a recalibration of sell-side model growth rates by mid-year.

Looking Ahead

Presently, prevailing expectations posit Tesla generating revenue of $110.5B and EPS of $3.26 in 2024. Projections for 2025 indicate revenue of $137.8B and EPS of $4.54. Munster envisions Tesla’s growth rate nearing 30% in 2026, with margin rates exceeding 20%, positioning the company as an earnings powerhouse.