What You Missed This Week in EVs and Clean Energy

Institutional investors and professional traders rely on The Fly to keep up-to-the-second on breaking news in the electric vehicle and clean energy space, as well as which stocks in these sectors that the best analysts on Wall Street are saying to buy and sell.

From the hotly-debated high-flier Tesla (TSLA), Wall Street’s newest darling Rivian (RIVN), traditional-stalwarts turned EV-upstarts GM (GM) and Ford (F) to the numerous SPAC-deal makers that have come public in this red-hot space, The Fly has you covered with “Charged,” a weekly recap of the top stories and expert calls in the sector.

Q3 RESULTS: Tesla reported on Wednesday Q3 adjusted EPS 66c and revenue of $23.4B, both below consensus of 72c and $24.1B, respectively. The company also said Cybertruck deliveries are on track for later this year, and it still sees overall full year production of 1.8M vehicles. The EV carmaker reported Q3 gross margin of 17.9% and free cash flow of $848M.

Several Wall Street firms cut their price targets on the stock following the news, including Citi. The firm lowered its price target on Tesla to $255 from $271 and kept a Neutral rating on the shares as Q3 results missed on key line-items including auto gross margins excluding credits. adjusted earnings and free cash flow. The firm says the tone on the earnings call “was noticeably more cautious on a few fronts,” including the macro environment, the Cybertruck ramp and Mexico expansion. Citi believes the bottom line is that Street estimates will need to come down again and cautious conference call commentary might dampen near-term sentiment. It saw some pressure on the shares given these results.

Wedbush also lowered the firm’s price target on Tesla to $310 from $350 but kept an Outperform rating on the shares following quarterly results. In a nutshell, Wedbush would characterize Wednesday’s conference call as a “mini disaster” as the Street wanted to get their arms around the falling margins and constant price cuts seen globally, but instead heard from a much more cautious Musk who focused on a higher interest rates, FSD/AI investments, and highlighting the difficult path for Cybertruck production over the next 12 to 18 months. That said, the quarter itself delivered auto gross margin ex credits of 16.3% vs. the Street at 17.6%, with margins that should stabilize over the coming quarters. However, Tesla is not committing to the end of price cuts and that is a big problem and overhang for the stock in the near-term, the firm argues.

Meanwhile, Bernstein noted that Tesla’s Q3 results were weak and that in many ways, the EV maker is increasingly looking like a regular auto company, with 5% growth in auto revenues, 7.6% op margins, and TTM free cash flow of $3.7B, or $2B ex EV credits, Bernstein adds. Moreover, commentary on its earnings call was even more concerning, the firm says, with Tesla appearing much more skittish on its near-to-medium growth prospects, indicating it was “reviewing all options” for FY 2024 growth, and that it needed to gauge the health of the global economy before going “full tilt” on its new Mexico facility. For FY 2024, Bernstein now believes that Tesla may have to guide deliveries below consensus and face lower margins. The firm has an Underperform rating on the shares with a price target of $150.

DOJ INFORMATION REQUEST: In a regulatory filing, Tesla said that, “We receive requests for information from regulators and governmental authorities, such as the National Highway Traffic Safety Administration, the National Transportation Safety Board, the SEC, the Department of Justice and various local, state, federal and international agencies. We routinely cooperate with such regulatory and governmental requests, including subpoenas, formal and informal requests and other investigations and inquiries. For example, the SEC had issued subpoenas to Tesla in connection with Elon Musk’s prior statement that he was considering taking Tesla private. The take-private investigation was resolved and closed with a settlement entered into with the SEC in September 2018 and as further clarified in April 2019 in an amendment.

“The SEC also has periodically issued subpoenas to us seeking information on our governance processes around compliance with the SEC settlement, as amended. Separately, the company has received requests for information, including subpoenas, from the DOJ. These have included requests for documents related to Tesla’s Autopilot and FSD features. Additionally, the company has received requests for information, including subpoenas from the DOJ, regarding certain matters associated with personal benefits, related parties, vehicle range and personnel decisions.

“To our knowledge no government agency in any ongoing investigation has concluded that any wrongdoing occurred. We cannot predict the outcome or impact of any ongoing matters. Should the government decide to pursue an enforcement action, there exists the possibility of a material adverse impact on our business, results of operation, prospects, cash flows, financial position or brand.”

Click here to check out Tesla’s recent Media Buzz Sentiment as measured by TipRanks.

$9B CAPEX: In a regulatory filing, Tesla said it currently expects capital expenditures to exceed $9B in 2023 and be between $7B-$9B in each of the following two fiscal years. The company said that, “Our business has been consistently generating cash flow from operations in excess of our level of capital spend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding, our sales growth is also generally facilitating positive cash generation. We have and will continue to utilize such cash flows, among other things, to do more vertical integration, expand our product roadmap and provide financing options to our customers.

“At the same time, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and other potential variables such as rising material prices and increases in supply chain and labor expenses resulting from changes in global trade conditions and labor availability. Overall, we expect our ability to be self-funding to continue as long as macroeconomic factors support current trends in our sales.”

TOYOTA, TESLA AGREEMENT: Toyota Motor North America (TM) announced it has reached an agreement with Tesla to adopt the North American Charging Standard, NACS, on its battery electric vehicles, BEVs, beginning in 2025. In line with Toyota’s vehicle electrification strategy, Toyota and Lexus customers will have access to more than 12,000 Tesla Superchargers across North America. Toyota will incorporate the NACS ports into certain Toyota and Lexus BEVs starting in 2025, including the all-new, three-row, battery-electric Toyota SUV that will be assembled at Toyota Motor Manufacturing Kentucky. Additionally, customers owning or leasing applicable Toyota and Lexus vehicles equipped with the Combined Charging System will be offered access to an adapter to enable NACS charging starting in 2025.

PRICE CUT: Fisker (FSR) announced a price reduction for the Fisker Ocean Extreme, the top trim level of the all-electric SUV. In the U.S., Fisker is lowering the price of the Ocean Extreme trim by $7,500, to $61,499 from $68,999. This price change will go into effect immediately. Customers who have already ordered or purchased an Extreme will receive a $7,500 price adjustment. The Fisker Ocean Extreme has a 113 kWh battery pack and an EPA range of 360 miles, which is the longest range of any new electric SUV in its class 2.

LACK OF RECOVERY VISIBILITY: Scotiabank downgraded Enphase Energy (ENPH) to Sector Perform from Outperform with a price target of $140, down from $180. The firm, which contends Q3 reporting season will be “very early to see major signs of inflection or improvement in the operating environment for residential solar,” is reducing estimates for some names in the group for both Q3 and Q4 on lower visibility and downgrading Enphase due to lack of visibility into a recovery.

SELL SUNPOWER: Morgan Stanley downgraded SunPower (SPWR) to Underweight from Equal Weight with a price target of $5, down from $8. While bullish on the long-term prospects for residential solar, the analyst downgraded SunPower on “several near-term dynamics.” These include growth headwinds arising from eroding demand in certain pockets of the U.S. and a slower than expected recovery in California post-NEM 3.0, the firm tells investors in a research note. Morgan Stanley sees considerable downside to consensus adjusted EBITDA estimates in 2024 and 2025 as well as a potential capital raise to maintain minimum required liquidity levels.

Citi also downgraded SunPower to Sell from Neutral with a price target of $4.50, down from $10. The analyst expects residential solar to have “another tough quarter” and sees risk to the guidance from SunPower. While SunPower is a “crowded short,” there is room for downside as forward estimates need to come down, Citi tells investors in a research note. The firm says the company’s’ strategic initiatives will take time to implement, its market share could be at risk, and liquidity remains tight.

BUY FIRST SOLAR: JPMorgan upgraded First Solar (FSLR) to Overweight from Neutral with a price target of $220, down from $239. Following a “very volatile” last few months for alternative energy stocks, the Q3 results should be an “important catalyst, helping to buoy better positioned stocks that have been dragged down with the overall space,” JPMorgan tells investors in a research note. The firm believes overall industry growth is largely intact as project returns remain within targeted ranges aided by declining equipment pricing and continued increases in electricity pricing. For First Solar, JPMorgan says the recent pullback tilts the risk/reward favorably for a company that has the best visibility into medium-term growth prospects owing to a backlog that stretches into later this decade.

SLUGGISH DEMAND: Deutsche Bank downgraded Sunnova Energy (NOVA) to Hold from Buy with a price target of $12.50, down from $23. The firm cut solar numbers into the second half of 2023 and 2024 on sluggish demand and lingering environmental headwinds. Deutsche sees further downside with sluggish demand on the residential side, both in the U.S. and Europe, a “stuffed” inventory channel which likely will take the next two to three quarters to decrease, pricing pressure and high competition on equipment, and overall challenging macro conditions. At this time, the firm would expect to see a bottom forming in late Q1 to Q2 of 2024, before potentially seeing a rebound into the second half of 2024.

Citi also upgraded Sunnova Energy to Buy from Neutral with a price target of $14, down from $22. The analyst says the upgrade is based “entirely on valuation.” The stock is down 55% since July 19, and now reflects net customer value discounted at 12% without any credit for the development company, which appears to be a “valuation floor especially as rates stabilize,” the firm tells investors in a research note. Citi believes Sunnova’s Q3 estimates have downside, but says the stock’s valuation “is too compelling for us to ignore.”

SUBSTANTIAL SELLOFF OVERDONE: Morgan Stanley upgraded Array Technologies (ARRY) to Equal Weight from Underweight with a price target of $23, up from $18. The substantial selloff in clean energy looks overdone, the analyst tells investors in a research note. The firm says Array offers demand resiliency and a balanced risk/reward skew at current share levels. The firm expects the company to benefit from strong growth in the utility-scale solar market, “which so far, is proving to be a more resilient sub-sector of clean tech.”