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- Tesla shares fell Thursday, as investors focused on the company’s Q1 earnings report and its drop in margins.
- Wedbush analyst Dan Ives said that margin concerns keep Tesla investors awake at night.
- Ives and other Tesla analyst's opinions on the earnings report and stock.
Tesla shares fell Thursday, as investors focused on the declining margins of the electric vehicle manufacturer. This led some analysts to lower their price targets and question the company's pricing strategy to maintain demand.
In a Thursday note to clients, Wedbush Analyst Dan Ives stated that margins were no longer a rose-colored issue.
Tesla shares dropped 7% during the session to $167.69. The stock is still up 36% in 2023.
Tesla's first quarter results showed a gross margin of 19.3% for the automotive industry, excluding federal credits. This is down from 29.1% during the first quarter 2022. The operating margin of the company, which is a measure of profitability, dropped to 11.4% in comparison with 19.2% a year earlier.
Tesla CEO Elon Mots said that the company's current priority is to focus on growth, rather than profit. He also stated that the company is currently navigating in an "uncertain" macro-environment.
Musk said during Tesla's Wednesday conference call that it was better to sell a lot of cars with a low margin, and then harvest this margin later as we perfect our autonomy.
Tesla's price reductions contributed to a 24% drop in net income, which was $2.51 billion. The price cuts were announced just before Wednesday's release of the first quarter results. The price tags of some Model Y models were reduced by $3,000
What analysts have to say about Tesla and its earnings:
Wedbush analyst Dan Ives has reduced his price target from $225 to $215.
Ives said that the majority of the Street supports the strategy to sacrifice near-term profit for long-term volume and demand gains. However, dipping below the magic 20% threshold is cause for concern. He said that while the 16%-18% gross-margin number was not achieved and Auto GM did better than the worst-case scenario, Tesla is comfortable with a margin below 20%. Street questions are raised about Tesla's trajectory moving forward.
The company is "walking a tightrope" between the margin pressure and driving stronger global demand of its Model Y & Model 3 vehicles. Ives said that the company's delivery guidance is achievable.
"In a Nutshell, We remain Very Bullish on the Tesla Story, HOWEVER, this margin compression narrative and price cuts must be carefully managed in the coming quarters, as it now appears as a Clear Overhang on the Stock."
CFRA Senior Equity Analyst Garrett Nelson – Cut 12-month Price Target to $250 from $275
We view the stock's decline …. Nelson said that the stock's decline was understandable.
"But we still rate the car as a Strong buy, with Austin and Berlin [factories] ramping up, the first Cybertruck deliveries, the Mexico plant breaking ground in the next few months and the low-priced coup that we expect to be introduced in 24."
David Trainer CEO of New Constructs: "Shares may trade as low at $28"
Tesla has delivered less than its 'goal of' 50% growth year-over year (YoY), in four consecutive quarters, as well as the entire year 2022. Trainer, in an investment research note, said that if the company is unable to meet its own lofty growth goals, it's time for bulls re-evaluate growth expectations.
He said that TSLA has a downside of 85%+ even if the number of units sold grows 3.5 times. If we use more realistic (but still optimistic) estimates of Tesla's margins and market shares, then the stock would be worth only $28/share. The math assumes Tesla's:
- The Net Operating Profit Margin After Tax is 13% by 2023, but it drops to 7% in 2023-2031 (equivalent to Toyota's TTM Margin) * Revenue grows at the consensus rates of 26%, 30%, and 23% in 2023, 2024, and 2025.
- Revenue grows by 10% per year between 2026-2031.
- If the value of the invested capital increases at a CAGR of 6% from 2023-2031 then the stock is worth only $28/share – a drop of 85% on the current price.
Jefferies Analyst Philippe Houchois: "Still searching for a floor in margins"
In a note, he stated that the guidance of 1.8m units was maintained. However, Q1 did provide little confidence in price elasticity and a floor for gross margins given that volume is more important than near-term profitability.
Cost indicators (logistics and commodities at the worst point) as well as clear improvements in lithium costs will likely trigger downward revisions of consensus.
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By: insider@insider.com (Carla Mozée)
Title: Tesla’s shrinking margins are ‘keeping investors up at night.’ Here’s what 4 analysts had to say about the outlook for EV maker’s stock after first-quarter earnings
Sourced From: markets.businessinsider.com/news/stocks/tesla-earnings-stock-price-analysts-tsla-reaction-margins-elon-musk-2023-4
Published Date: Thu, 20 Apr 2023 16:19:00 +0000
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