Leading analysts are cautious on Tesla after the company’s quarterly results, saying the electric vehicle maker’s price cuts could sacrifice too much in terms of profitability. Tesla shares fell more than 6% in early trading after the company reported lower GAAP earnings from a year earlier. Chief executive Elon Musk pointed to economic “uncertainty” and “stormy weather” ahead that could dampen demand for cars during the earnings conference call. The company also said underutilization of new production plants as well as higher costs added pressure on margins. But analysts focused on price cuts and how far the company will go to meet juice demand. So far this year, the company has slashed prices for the Model 3 and Model Y six times in the United States. Analysts fear this could further affect margins. Here’s what the top analysts were saying: JPMorgan, Underweight Rating, Price Target $115 (Down from $120): “In what could be another indication that demand isn’t as robust as expected by management, inventory has piled up (enough to satisfy 15 days of sales at the end of 1Q23, compared to just 3 days of supply a year ago).not for the $521 million from the sale of regulatory credits), well below JPM + $1,872 million.” Wells Fargo, Equal Weight rating, price target of $170 (was $190): “Trading margin for market share…TSLA is trading post-market following a loss of automotive margin in the first quarter.. TSLA continued its price cuts, underscoring its cost advantage over peers. We are cautious on discounting given LT brand risk. Oppenheimer, Perform rating, price target NA: “While we believe TSLA will benefit over time from market share gains and margin capture, we expect near-term margin pressure to be a concern for investors.” Deutsche Bank, buy rating, $200 price target: “Margin risk remains an overhang; pricing strategy is even worse for other OEMs…Tesla’s first quarter results showed significant deterioration in automotive gross margins due to steep price declines, in line with our very low estimates, but well below consensus expectations as well as management guidance.” Bank of America, neutral rating, price target of $225 (was $220): “Tesla’s commentary suggested volume growth was a priority over price and short-term profit, and the intention is to achieve greater profit from aftermarket products such as Full Self Driving (FSD)… Company performance in Q1 :23 have been better than expected, demand for electric vehicles continues to grow, and TSLA has continued access to relatively inexpensive capital (both internally and externally) to support future growth. balanced by concerns about increasing competition from electric vehicles, further price cuts and macroeconomic challenges. Therefore, overall, we reiterate our neutral rating. Evercore ISI, In Line note, $165 price target: “The red line of ‘20%’ gross margin has been breached (Q2 will be lower).” Jefferies, Buy Rating, $230 Price Target: “Still looking for a margin floor… Biggest cash loss at ~$440M (vs. $2.2B) with a expected increase in inventory not offset by higher debts 1.8 million units target maintained but Q1 did not provide much confidence in price elasticity or a gross margin floor prioritizing to volume on short-term profitability.” Goldman Sachs, Buy Rating, $185 Price Target: “Tesla reported non-GAAP automotive gross margin (including SBC and excluding regulatory credits revenue) of 19%, lower than GS at 21% and below the 20% level the company spoke on its 4Q22 earnings call… We believe the report was an additional negative, as the company’s pricing actions put pressure on automotive gross margin excluding credits more than we expected.” Bernstein, underperformance rating, $150 price target: “It is important to note that, despite significant price declines, demand still appears to be contested for Tesla and the price elasticity appears to be lower than what Tesla thought. We estimate that Tesla’s annualized order rate exiting the first quarter may have been 1.2 million units per year, well below Tesla’s target.” Piper Sandler, Overweight, $300 Price Target: “While skeptics may focus on <20% automotive gross margin, we believe an obsession with this metric is unwarranted. Granted, the CFO hinted that 20% or more should be doable, but we had actually modeled less than 20% all along, and overall business performance compares favorably to our forecast.” RBC Capital Markets, Outperformance, $212 price target (vs. $217): "In the short term, Tesla is willing to trade its gross margin for higher volume. In the long term, we believe this is the right strategy and leverages its cost leadership position." and preserves the potential lifetime value of new customers. However, this is not without pain, as we now believe margins will deteriorate before they improve." Citigroup, Neutral Rating, Price Target $175 (in down from $192): “The lack of Q1 margin confirms that price declines have not been offset to the extent previously anticipated. This, along with recent Q2 price declines, could dampen NT sentiment as margins will likely come to be seen as more vulnerable with Tesla fully committed to 2023 volume targets amid a softer macro backdrop. We expect the stock to pull back. Morgan Stanley, online note, price target of $200 (instead of $220): "The company is in the early innings of 'investing' its cost leadership (down) in price (towards bottom). As Tesla's margins decline, competitors may need to re-evaluate their EV strategies." – CNBC's Michael Bloom contributed to this report.
