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Tesla (NASDAQ:TSLA) shares are down over 3% in pre-market Monday after red-hot May inflation data ignited another major selloff in tech shares.
Tesla stock price is also down despite the EV maker filing to split shares 3-for-1 late Friday. Moreover, the output at Tesla’s Shanghai factory is operating at 100% of capacity again according to Securities Times.
RBC Capital Markets analyst Joseph Spak upgraded Tesla stock to Outperform from Sector Perform. The upgrade move comes amid a “more favorable near-term set-up and belief that Tesla’s focus on supply chain and vertical integration will be a mid-term competitive advantage.”
Spak is calling for 249,000 delivered electric vehicle (EV) units in Q2 while he sees margins surprising to the upside.
“1Q22 auto GM ex-credits was 30% and walking q/q lower volume, higher depreciation weigh, but pricing can offset. We forecast 2Q22 auto GM ex-credits at ~28.6%. Visible Alpha consensus 2Q22 auto gross margins ex-credits is 26.4%, but that is also built on that 279k unit forecast which is likely to come down. So we see the potential for low margin expectations and hence a margin beat. Looking ahead we are positive as well. For 3Q22, RBC is at 396k deliveries vs. consensus at 378k and we see 2H22 auto gross margins >30% as Shanghai gets back to pace, Berlin and Texas ramp and pricing gains continue,” Spak told clients in a note.
The analyst is even more bullish on Tesla stock in the mid-to-longer term given the EV company’s “increasingly favorable” industry positioning.
“TSLA has solid demand as evidenced by growing lead-times for their vehicles; pricing gains should continue. As EVs enter their 3rd phase in the mid-to-later part of the decade, we believe being able to deliver EVs will increasingly depend on supply chain. While TSLA is fairly secretive about the deals they have cut for supply of raw materials, we believe they have done more than other OEMs. TSLA’s early focus on vertical integration (not just batteries/raw materials but also motors, semis, software) is likely to pay off especially as industry supply of critical materials may become an issue in 2027/28 and TSLA may be able to control more of their own destiny. Indeed, it appears Elon’s Master Plan Part 3 is likely to focus on achieving very large scale to shift the transportation/energy infrastructure,” Spak added.
The fact that Tesla can build out and secure key materials puts the EV company in “a strong competitive advantage,” Spak concluded.
The price target on Tesla stock is now $1,100 per share, down from $1,175.
