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As Tesla Inc. shares were down 7% premarket Thursday in the wake of earnings, numerous analysts saw silver linings.
Yes, Tesla
TSLA,
fell short of expectations late Wednesday with its third-quarter automotive gross margins, and the company posted an earnings shortfall that marked its “first bad miss in three years,” according to Evercore ISI analyst Chris McNally. The electric-vehicle maker also sounded a more careful note on 2024 given the economic climate and complexities around the Cybertruck rollout.
Opinion: Tesla’s Cybertruck has Elon Musk sounding unusually cautious
But is Wall Street “missing the forest for the trees”? Perhaps so, wrote RBC Capital Markets analyst Tom Narayan.
“Investors will likely focus their attention on the cautious commentary on 2024 and on the potential delay of the Next Gen product, but we suspect this could be all part of a master pivot from being a volume car maker to becoming a Tier 1 supplier to [original equipment manufacturers],” he wrote in a Thursday report. “Tesla’s cars can still be a proof of concept and make money on selling [Full Self-Driving] subscriptions, but we think selling power electronics, batteries, charging, and ultimately FSD, could be far more profitable.”
Narayan reiterated his outperform rating on Tesla shares, even as he acknowledged that consensus expectations for 2024 deliveries could come down before the next report. He cut his price target on the stock to $301 from $305.
Piper Sandler’s Alexander Potter offered that Tesla’s earnings miss shouldn’t have been too surprising to investors, and he saw better days ahead for Tesla’s margins.
“On the positive side, the stationary battery business logged an exceptional quarter, with gross margin of 24.4%,” he wrote. Plus, the cost of goods sold per unit “is also trending favorably, which bodes well for a margin recovery.”
Potter added that he was “encouraged” by the margins for Tesla’s energy business. “As profit from Energy grows, investors may stop focusing so heavily on the car business,” he noted.
He set an overweight rating and $290 target price on Tesla’s stock, which he called his “favorite holding over the next year (and beyond),” even as “it’s tricky to identify upside catalysts in the next few months.”
Baird’s Ben Kallo took a similar view, writing that he was “encouraged by the growing contribution of the Energy and Services businesses” and saying that margins should improve as Tesla reaches scale. He gave the stock an outperform rating with a $300 target.
Others, including Itay Michaeli of Citi Research, were more measured.
“The tone on the call was noticeably more cautious on a few fronts including macro, the Cybertruck ramp (though deliveries start this year) and Mexico expansion,” he wrote in a Thursday morning note. “Though there were a few bright spots in the quarter (energy margin, lower COGS/unit), the bottom line is that Street estimates will need to come down again and cautious conference call commentary might dampen [near-term] sentiment (though the start of Cybertruck deliveries likely generates positive headlines).”
See also: Elon Musk says Cybertruck sales will start Nov. 30
In Michaeli’s view, sentiment around the U.S. electric-vehicle market is “decisively negative,” as investors have realized “that Tesla’s price cuts haven’t unlocked significant demand and have made it more difficult for competitors to successfully ramp EVs.”
He set a neutral rating on Tesla’s stock and cut his price target to $255 from $271 after the report, which he said could weaken the already sour sentiment on the EV market even though factors like structural density could drive improvements in the next year or two.
Needham’s Chris Pierce expressed some caution as well. “Global days of supply was unchanged sequentially, despite ~10% lower vehicle production,” he flagged. “We expect this metric to worsen as TSLA ramps production in Q4, adding to fears of further price cuts to drive unit sales and keeping margin concerns front and center.”
Pierce rated the stock at hold.
