Global Courant 2023-04-20 16:51:59
Major analysts are cautious on Tesla after the company’s quarterly results, believing the electric vehicle maker’s price cuts may be too much of a sacrifice in terms of profitability. Tesla shares fell more than 6% in early trading after the company reported a year-earlier drop in GAAP earnings. Chief executive Elon Musk pointed to economic “uncertainty” and “stormy weather” ahead that could affect demand for cars during the earnings conference call. The company also said that underutilization of new production facilities and higher costs are putting pressure on margins. But analysts’ focus has been on the price cuts and how far the company will go in juice demand. So far this year, the company has slashed prices on both the Model 3 and Model Y in the US six times. Analysts fear that this will further affect margins. Here’s what leading analysts said: JPMorgan, underweight, $115 price target (below $120): “In what may be another indication that demand is not as robust as management expected, inventory is building (up to enough to meet 15 days of sales at the end of 1Q23, up from just 3 days of inventory a year ago. This inventory build-up cost the company $1.5 billion in cash in 1Q, resulting in free cash flow of only $441 million (which would have been negative if not for the $521 million from legal credit sales), or much less than JPM + $1,872 million.Wells Fargo, Equal Weight rating, $170 price target (below $190): “Trading margin for market share…TSLA is trading down after the market after a miss in auto margin in Q1. The company backtracked from its >20% auto GM target TSLA continued with price cuts, increasing their cost advantage over competitors highlighted. We are cautious about discounting given the LT brand risk.” Oppenheimer, Perform rating, NA price target: “While we believe TSLA will benefit from market share gains and margins over time, we expect margin pressure to have a negative effect in the near term. will be a concern for investors.” Deutsche Bank, Buy rating, $200 price target: “Margin risk remains an overhang; pricing strategy even worse for other OEMs…Tesla Q1 results showed a significant deterioration in gross margins in the auto industry due to major price cuts, in line with our street-low estimates, but well below consensus expectations and guidance from the management.” Bank of America, neutral rating, $225 price target (was $220): “Tesla commentary suggested that growing volume was a priority over pricing and near-term earnings, and the intent is to increase earnings with post-sale products such as Full Self Driving (FSD)…The company’s 1Q:23 performance was better than feared, demand for electric vehicles continues to grow, and TSLA has continued access to relatively cheap capital (internal and external) to support future growth. offset by concerns about increased EV competition, further price cuts and macro challenges. Therefore, on balance, we reiterate our Neutral rating.” Evercore ISI, In Line rating, $165 price target: “Gross margin broken redline of “20%” (Q2 will be lower).” Jefferies, Buy rating, $230 price target: “Still looking for a margin floor… Larger cash flow miss of ~$440M (Cons$2.2B) with expected inventory increase not offset by higher debt. Guidance maintained at 1.8 million units but Q1 failed to provide great confidence in price elasticity or a floor in gross margin given the priority on volume over near-term profitability.” Goldman Sachs, buy rating, $185 price target: “Tesla reported a non-GAAP automotive gross margin (including SBC and excluding regulatory credit revenue) of 19%, below GS of 21% and below the company’s 20% level has spoken on its 4Q22 earnings call… We think the report was an incremental negative, with the company’s pricing actions putting more pressure on auto gross margin, excluding credits, than we expected. Bernstein, Underperform rating, $150 price target: “Importantly, despite significant price cuts, demand for Tesla continues to be challenged and price elasticity appears more muted than Tesla thought. We estimate that Tesla’s annualized order run rate as it exited from Q1 may have been 1.2 M units per year, well below Tesla’s target.” Piper Sandler, Overweight, $300 price target: “While skeptics may focus on
