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Tesla: Strong Demand Dodging Supply Chain Challenges

The EV industry is battling multiple challenges, including semiconductor shortages and supply chain constraints. However, the demand for EVs continues to remain strong, fueled by government initiatives and customers’ inclination towards environment-friendly vehicles.

Tesla (TSLA) successfully battled the challenges faced by the EV industry in Q3 to keep its factories running. The company reported its “best-ever net income, operating profit and gross profit” in Q3 at $1.6 billion, $2 billion and $3.6 billion, respectively. Tesla posted revenues of $13.8 billion, soaring 57% year-over-year, and surpassing Street estimates of $13.6 billion.

Adjusted earnings came in at $1.86 per share, up a whopping 145% year-over-year, and significantly beating analysts estimates of $1.58 per share.

Tesla delivered an operating margin of 14.6% in Q3 that exceeded its guidance over the medium term of “operating margin in low-teens,” even as the company’s Average Selling Price (ASP) declined 6% year-over-year in Q3 due to a “continued mix shift towards lower-priced vehicles.” (See Top Smart Score stocks on TipRanks)

Webush analyst Daniel Ives remained impressed with Tesla after the Q3 results and believed that a “new Tesla margin story” is taking hold. The analyst continued to be bullish on the stock with a Buy and raised his price target from $1,000 to $1,100 (21.2% upside) on the stock.

By the analyst’s estimate, the demand for EVs is outstripping Tesla’s supply by around 30,000 units and along with chip shortage has led to extended waiting times for current orders of Tesla’s Model Y and Model 3.

However, Ives is of the opinion that the start of production at the company’s Gigafactory hubs in Austin and Berlin could result in expanding Tesla’s production capacity to around 2 million units every year over the next 18 months.

Indeed, according to Tesla, over multiple years, the company expects its vehicle deliveries to rise on an average of 50% annually. However, this growth rate will depend on its “equipment capacity, operational efficiency and the capacity and stability of the supply chain.”

Moreover, the analyst believes that China will be the key to TSLA’s bullish thesis over the long term. In 2022, Ives estimates that China will make up more than 40% of Tesla’s global deliveries.

Turning to the rest of the Street, analysts are sidelined on Tesla with a Hold rating, based on 12 Buys, eight Holds, and seven Sells. The average Tesla price target of $756.25 implies an approximately 16.7% downside potential to current levels.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.

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