- Tesla shares fell Thursday as investors focused on the company’s declining profit margins in its first-quarter earnings report.
- Wedbush analyst Dan Ives said profit margin concerns “are keeping Tesla investors up at night.”
- Here’s what Ives and other Tesla analysts have to say about Tesla’s earnings report and stock price.
Tesla’s shares fell on Thursday as investors focused on falling profit margins at the electric car maker, with some analysts lowering their pricing targets and weighing on the company’s strategy of lowering prices to sustain demand. was placed.
“Without rose-tinted glasses: profit margins are now a sensitive issue, keeping Tesla investors awake at night,” Wedbush analyst Dan Ives said in a note to clients Thursday. rice field.
Tesla shares fell 7% during the session to $167.69. As of 2023, the stock is still up about 36%.
Tesla’s First quarter results Includes automotive gross margin excluding federal credits of 19.3%, down from 29.1% in Q1 2022. Operating margin, a measure of profitability, declined to 11.4% from 19.2% in the same period last year.
Tesla CEO Elon Musk has indicated the company’s priority for the foreseeable future is growth rather than profits, saying the company is navigating an “uncertain” macro environment.
“[It’s] We’d be better off getting that margin in the future by shipping more cars at lower margins and having full autonomy,” Musk told analysts on a Tesla conference call Wednesday.
Net income fell 24% year over year to $2.51 billion, partly due to Tesla’s price cuts. The latest round of cuts was issued just before the release of first-quarter results late Wednesday. The price tag on some Model Y units has been reduced by $3,000.
Here’s what some analysts have to say about Tesla’s stock price and earnings report:
Wedbush Analyst Dan Ives – Lowered price target from $225 to $215.
“Short-term margin pain for long-term demand/volume growth is a strategy Street is mostly on board, but falling below the magical 20% threshold is a concern.” Bearish 16% The -18% gross margin didn’t happen and Auto GM was better than worst-case fears, but Tesla is perfectly comfortable going below 20% and there are street questions about the trajectory going forward.” he said.
The company is walking a tightrope between growing global demand for its Model Y and Model 3 vehicles and margin pressures. According to Ives, 1.8 million delivery guidance is achievable.
“In a nutshell, we remain very bullish on the Tesla story, but this narrative of margin compression and price cuts is emerging as a clear share price overhang at the moment, so we’re going to see it in the next few quarters. must be carefully managed over time.”
CFRA Senior Equity Analyst Garrett Nelson – 12-month price target lowered from $275 to $250
“Despite not seeing much new developments and slightly underperforming gross margins, we didn’t exceed Street’s expectations, we simply met Street’s expectations, and the decline in the stock price was not a problem,” Nelson said. I think it’s understandable,” he said.
“But in Austin and Berlin [factories] With the Cybertruck’s first shipments, a groundbreaking Mexican factory rollout due in the next few months, and a low-cost coupe expected to be introduced in 2024, the buying continues to be strong. . “
New Constructs CEO David Trainer – ‘Stocks could trade as low as $28’
“Tesla has grown shipments less than 50% year-over-year (YoY) for four straight quarters, not just for the full year of 2022. It’s time for the sources to reassess their growth expectations,” Trainor said in a memo from the investment research firm.
“Even with a 3.5x increase in sales, TSLA still has a downside of more than 85%,” he said. “A more reasonable (but very optimistic) estimate of Tesla’s margin and market share achievements would be worth just $28 per share for the stock. Here’s the hypothetical calculation for Tesla:
- After-tax net operating margin is 13% in 2023, declining to 7% (equal to Toyota’s TTM margin) in 2023-2031. twenty three%),
- Revenue will increase by 10% annually from 2026 to 2031,
- If invested capital grows at a CAGR of 6% from 2023 to 2031, the current share price would be just $28 per share, down 85% from the current price. “
Jefferies analyst Philippe Houchois – ‘still looking for margin floor’
“While the 1.8 million unit guidance was maintained, the first quarter did not lend much confidence in price elasticity or the bottom end of the gross margin, which prioritized volume over short-term profitability,” he said. wrote in a note, maintaining Tesla’s Jefferies buy rating with a price target of $230. .
“Despite clear improvements in cost metrics (worst-case logistics, commodities) and lithium costs, gross margin guidance for Q2 is unlikely to trigger a downward revision to consensus.”