Tesla (TSLA) reports second-quarter financials late Wednesday amid warning bells on margins as analysts expect vehicle price cuts and discounts to push gross margins well below the 20% “floor” Tesla has targeted in the past. TSLA shares edged up early Wednesday.
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Ahead of the company’s late-Wednesday earnings report, Tesla stock angled toward its ninth advance in the past 10 weeks, despite some vigorous selling by Cathie Wood and her Ark Invest firm. Meanwhile, one analyst risked an earnings day upgrade as European Union new car registrations jumped 17.8% in June.
While a slew of analysts voiced caution heading into Tesla earnings, Fubon analyst Josephine Hsieh on Wednesday upgraded TSLA to a buy rating, up from neutral. Hsieh has a Tesla stock price target of 330, around 12% above where shares closed Tuesday.
However, Wedbush analyst Daniel Ives, a longtime Tesla bull, tweeted Wednesday auto gross margins are the “key” for Tesla’s report. Cathie Wood sold off tranches of her firm’s Tesla stock holdings in consecutive sessions, unloading more than 73,000 shares this week before the EV giant reports second-quarter financials Wednesday.
Tesla stock advanced 1.2% to 296.70 Wednesday during market trade. On Tuesday, TSLA gained 1% to 293.49, with volume below average.
Cybertruck Sends Tesla Stock Higher
Over the weekend, just four days before earnings, Tesla tweeted a photo of the first Tesla Cybertruck made at its Austin plant. Tesla stock responded Monday, jumping 3.2% to 290.38.
Morgan Stanley analyst Adam Jonas wrote Tuesday “now that the first Cybertruck has rolled off the line in Texas, the fun can start.”
“Investors will have an ear out for any potential info on the new release during the earnings call Wednesday,” Jonas said of the Cybertruck.
TSLA stock rose 2.5% last week to 281.38, hitting a fresh 2023 high intraday Friday. Tesla is up 128% in 2023. Shares are working on a 313.80 buy point from a deep consolidation going back to late September, according to MarketSmith analysis.
Tesla Stock: What To Expect From Q2
The EV company reports second-quarter financials after Wednesday’s market close. Analysts expect profits to edge up around 4% to 80 cents per share. Wall Street expects revenue totaling $24.22 billion, up 43% compared with last year.
Investors will listen for news about an upcoming, updated Model 3. Also of interest, news on a future Mexico plant, which will make Tesla’s next-generation model. Musk has hinted at the next-gen model, but no more than that.
And, of course, investors will want to hear more about when the Tesla Cybertruck will begin production and meaningful deliveries.
TSLA reported record global deliveries in early July — as price cuts, tax credits and discounts propelled demand well above Wall Street forecasts.
Tesla deliveries ran to 466,140 in the second quarter, sprinting past Q1’s record 422,875 and Q4’s 405,278. Model 3 and Y deliveries hit 446,915 in Q2. Model S and X deliveries picked up to 19,225. Production hit 479,700, exceeding deliveries once again, even with Tesla curbing output below capacity.
Analysts Cautious Going Into Earnings
On Monday, Wells Fargo analyst Colin Langan raised the firm’s price target on Tesla stock to 265, up from 170, while maintaining an equal-weight rating. The target is about 10% below where shares ended on Tuesday.
Langan wrote Monday that while Tesla beat Q2 delivery volume estimates, Wells Fargo is cautious about how price cuts may have affected Tesla’s Q2 auto margins. Also of concern: production volumes outpacing demand heading into the second half of 2023.
While Tesla beat Q2 delivery volume estimates, Wells Fargo forecasts the company’s gross margin on autos falls to 17.5% due to continued price cuts and weaker mix, Langan wrote Monday.
“Margins, margins, margins,” Ives wrote in a note Monday.
Ives said Tesla should be able to top Wall Street Q2 estimates, but the big focus is on auto gross margins “to gauge the impact of the price cuts and what this means for margins going forward.”
The Wedbush analyst wrote he also expects auto gross margins to be around 17.5%. However, Ives added gross margins “should ramp back over the coming quarters and back toward the 20% level heading into 2024.”
This follows Citigroup raising its Tesla stock price target to 278 from 215 last week. Analyst Itay Michaeli maintained a neutral rating on TSLA. He sees a “neutral-to-slightly negative” setup for Tesla going into the Q2 report. Michaeli remains concerned about price cuts eating into margins.
On Tuesday, Jonas joined the chorus of analysts saying margins are top of mind. The Morgan Stanley analyst said he has seen estimates as low as 16% to as high as 20% for Tesla’s Q2 gross margins.
“We are relatively cautious on the earnings revision outlook while prepared for the company to tout its AI chops,” Jonas said.
Margins Fell In Q1
On April 19, Tesla reported a big first-quarter earnings decline while revenue missed views. Profit margins for the global EV giant fell below 20% as the company executed an aggressive price-slashing strategy in the first part of 2023.
The EV company’s total gross profit came in at $4.5 billion. Tesla’s gross profit margin at 19.3%, down from 23.8% in the fourth quarter and 29.1% a year earlier.
In the fourth quarter, gross margins on autos, excluding regulatory credits and leases, skidded to 18.3% from 23.8%. That remains below the 20% gross margin “floor” Tesla previously targeted.
Tesla stock ranks third in IBD’s automaker industry group. It has a 98 Composite Rating out of 99. Tesla has a 96 Relative Strength Rating and its EPS Rating is 93 out of 99.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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