Here we go again. Q2 earnings season is in its early innings but there are already some interesting quarterly reports on deck this week. Among them, all eyes are on Tesla (NASDAQ:TSLA), the undisputed leader in the electric vehicle (EV) industry, as it prepares to unveil its latest financial statement this Wednesday (July 19), once the market action comes to a close.
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With Q2 deliveries already announced, we already have some idea what to expect. Tesla blew Street estimates out the water, delivering 466,000 units vs. the analysts’ forecast of 447,000.
That performance was fueled by Tesla offering multiple price cuts this year on its vehicles, with consumers evidently keen on buying models at lower price points. Wedbush analyst Daniel Ives thinks that act was a smart move.
“The aggressive price cuts were a near-term pain for long-term gain strategic move for Tesla to put an iron fence around its installed base and gain new EV customers by cutting prices in a choppy macro backdrop,” the 5-star analyst opined.
However, with the Q2 print about to drop, the focus now turns to the main issue at hand, or as Ives puts it, “Margins, margins, margins.” Investors will be keen to find out the impact of the price cuts and “what this means for margins going forward.”
So, what would be an acceptable outcome? Ives thinks the “line in the sand” is Auto gross margins (ex credits) of ~17.5%. The quarter, however, should represent a bottom for gross margins, which over the coming quarters, should pick up again and move towards the 20% level as 2024 approaches.
Zooming out a bit, Ives thinks there has been a perception shift around Tesla these past few months. Given the “EV castle” It has constructed (supercharger network, battery technology, and FSD software ecosystem), he sees similarities with how Apple and Amazon were looked at as the Street began to realize the “margin story and valuation at AWS for Amazon and the growth/margins of the Apple Services story.” Both of these factors played a crucial role in the “re-rating” of both Amazon and Apple over time. “We believe Tesla could be next as investors recognize the underlying SOTP valuation with batteries and AI key,” Ives summed up.
For now, Ives maintained an Outperform (i.e., Buy) rating and $300 price target, although that figure suggests the shares are currently trading at their fair value. (To watch Ives’ track record, click here)
Considering TSLA stock is up by 166% year-to-date, most on the Street think that it is due a cooling down period. Rating-wise, the shares receive a Hold consensus rating, based on 12 Buys, 13 Holds and 5 Sells. Moreover, the $237.50 average target suggests the shares will post a 18% decline in the months ahead. (See Tesla stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
