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Tesla Stock Drops in Wake of Earnings, Analysts Find Silver Linings


The recent earnings report from Tesla Inc. caused a 7% drop in the company’s shares premarket on Thursday. Despite falling short of expectations, several analysts believe there are positive takeaways from the results.

According to Evercore ISI analyst Chris McNally, this marks Tesla’s “first bad miss in three years,” with lower third-quarter automotive gross margins and an overall earnings shortfall. Additionally, Tesla expressed caution regarding its 2024 outlook due to economic uncertainties and the complexities surrounding the Cybertruck rollout.

However, RBC Capital Markets analyst Tom Narayan suggests that Wall Street might be missing the bigger picture. In a report issued on Thursday, Narayan speculates that Tesla could be transitioning from a volume car manufacturer to a Tier 1 supplier for original equipment manufacturers (OEMs), which could be far more profitable for the company. He acknowledges that cautious commentary on 2024 and potential delays in the release of Next Gen products may be concerning to investors, but believes that Tesla’s cars could still serve as proof of concept and generate revenue through selling Full Self-Driving (FSD) subscriptions.

Narayan maintains his outperform rating for Tesla shares, despite the possibility of downward revisions in consensus expectations for 2024 deliveries. He has adjusted his price target on the stock to $301 from $305.

Alexander Potter of Piper Sandler suggests that Tesla’s earnings miss should not have come as a surprise to investors. He remains optimistic about future improvements in Tesla’s margins, highlighting the exceptional performance of the stationary battery business during the quarter, which had a gross margin of 24.4%. Additionally, the cost of goods sold per unit is trending favorably, indicating the potential for a margin recovery.

Potter points out that Tesla’s energy business is also showing promising margins, and predicts that as profits from this division continue to grow, investors may shift their focus away from the car business.

Overall, while Tesla’s recent earnings report may have initially disappointed investors, several analysts believe there are positive developments and potential for future growth in various aspects of the company’s operations.

Tesla’s Stock Receives Analyst Ratings

Several analysts have weighed in on Tesla’s stock after the company’s recent financial report. One analyst, who remains bullish on the stock, set an overweight rating and a target price of $290. Despite acknowledging the lack of immediate upside catalysts, he believes Tesla is his “favorite holding over the next year (and beyond).”

Another analyst, Ben Kallo from Baird, also expressed optimism. He highlighted the growing contribution of Tesla’s Energy and Services businesses and anticipates improved margins as the company scales up. He gave the stock an outperform rating with a target price of $300.

However, not all analysts shared the same enthusiasm. Itay Michaeli from Citi Research took a more cautious stance. He observed a more restrained tone on the conference call and expressed concern about macro trends, the ramp-up of the Cybertruck, and expansion into Mexico. While he mentioned a few positive aspects of the quarter, such as energy margins and lower cost of goods sold per unit, he anticipated that Street estimates would need to be revised down again due to cautious commentary from the conference call.

Michaeli also noted that sentiment surrounding the U.S. electric-vehicle market is currently negative. Investors have realized that Tesla’s price cuts have not significantly boosted demand and have made it harder for competitors to ramp up their own electric vehicles. Consequently, he set a neutral rating on Tesla’s stock and revised his price target to $255 from $271.

Chris Pierce from Needham expressed caution as well. He pointed out that despite a 10% decrease in vehicle production, global days of supply remained unchanged. He expects this metric to worsen as Tesla increases production in the fourth quarter, heightening concerns about further price cuts and margin issues. He rated the stock as a hold.

Overall, while some analysts remain bullish on Tesla’s stock, others have taken a more measured or cautious approach. The varying opinions reflect the complexity of the EV market and the challenges that lie ahead for Tesla.

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