Tesla shares fell in early trading Wednesday as analysts moved quickly to revise their ratings and price targets for the automaker following a disappointing second-quarter earnings report.
Tesla (TSLA) which had risen nearly 25% since reporting a surprise improvement in second-quarter deliveries, posted a nearly halving of overall profit thanks in part to an ongoing electric vehicle price war and rising operating costs.
The group posted net profit of 52 cents per share, down 43% from the same period last year, which missed Wall Street's forecast of 62 cents. However, group revenue managed to rise 3% from last year to $25.5 billion, thanks in part to a better-than-expected delivery tally.
That didn't translate into firmer profit margins, however, and Tesla's gross margin of 14.6% not only missed Wall Street's forecast but was the lowest overall figure in at least five years.
Tesla reiterated its previous view that full-year deliveries would be “significantly below” last year's record of about 1.81 million, but CEO Elon Musk leaned toward the group's ambition to introduce a new, lower-priced model in the first half of next year.
Robotaxi delay
He also confirmed that the group will unveil its robotaxi prototype on October 10, following reports that the event would be delayed from its August 8 schedule due to what he called “some major changes that I think would improve the vehicle.”
Musk also stressed the group's new technological future, telling analysts on the post-earnings conference call that “the world is heading toward fully electrified transportation” that includes not just cars but also planes and ships.
“Anyone who doesn't believe Tesla will solve the problem of autonomous vehicles shouldn't own Tesla stock,” Musk said. “They should sell their Tesla stock.”
Related: Tesla's earnings and vague outlook dismayed investors and analysts
“If you think Tesla will solve the autonomy problem, you should buy Tesla stock. And all those other questions are up in the air.”
However, the results, as well as Musk's ever-upbeat comments, have generated a mixed reaction on Wall Street, with the stock primed for a big drop at the open and analysts looking to adjust their ratings and price targets as a result.
Wall Street revises price targets
“While Tesla stock has rallied strongly in recent months, with Robotaxi Day being pushed back to October, we see few near-term catalysts for the story,” said CFRA analyst Garrett Nelson, who cut his Tesla price target by $10, to $240 per share, following last night's earnings.
“We remain on the sidelines on valuation and await further clarity on medium-term growth drivers, but continue to believe in the long-term story,” Nelson added.
That thesis was evident in a number of notes and updates, including from Cantor Fitzgerald analyst Andres Sheppard, who maintained his “overweight” rating and $230 price target after last night's earnings.
Related: Tesla to start using humanoid robots in 2025
“While we don't expect (the robotaxi segment) to launch before 2027, we do expect it to be a significant business segment for the company over the long term,” Sheppard said.
“We also expect future revenue from (autonomous driving) and robotaxis to be critical to Tesla's long-term bullish thesis,” he added.
Jefferies analyst Philippe Houchois, who maintained his $165 price target and “hold” rating following last night’s update, was more focused on the impact of Tesla’s energy storage business, whose revenue doubled from last year to about $3 billion.
He was also not overly impressed with Musk's performance on the post-earnings conference call.
Wall Street revises price targets
“The second quarter results mostly confirmed the growing importance of storage (16% of gross profit) and a return to positive free cash flow ($1.3 billion) thanks to a modest reversal of working capital and a reduction in capital expenditure, but also as a record (zero-emission vehicle revenues ($890 million),” Houchois said.
“Tesla's earnings call and Q&A session revolved around mostly familiar themes, with reiterations of previous comments about TAMs (Humanoids > Robotaxis > Cars), vague comments about robotaxi business models, and very little additional information,” he added.
On the bullish side, Baird analyst Ben Kallo maintained his “outperform” rating and $260 price target and suggested the post-earnings pullback could be a buying opportunity heading into the fall robotaxi event.
Related: Tesla's surprise second-quarter deliveries send shares soaring despite China slump
“Comments indicate that weaker margins in the automotive sector may persist throughout the year, but strength in the energy segment and increased regulatory credits could offset these challenges,” Kallo said. “Critically, the timelines for the introduction of the Robotaxi and the next-generation vehicle remain intact, alleviating concerns about delays.”
Two other Wall Street analysts kept their Tesla price targets unchanged after last night's update, including Barclays' Dan Levy, who left it at $225 a share, and Guggenheim's Ronald Jewsikow, who reiterated his $134 target.
More Tesla:
- Analysts renew Tesla stock price targets; robotaxi event in focus
- Tesla's surprise second-quarter deliveries send shares soaring despite China slump
- Tesla headquarters under strict security measures after alarming 911 calls
Meanwhile, Goldman Sachs analyst Mark Delaney cut his price target by $25 to $230 per share, while maintaining a “neutral” rating.
Meanwhile, Wedbush analyst Dan Ives simply noted that “the bull/bear debate on Tesla will continue today,” given the mixed nature of last night’s earnings report and product update, while maintaining his “outperform” rating and $300 price target.
“Bears will focus on the loss of gross margin in the auto sector and the huge regulatory credits for electric vehicles that drive results, which we ultimately view as minimal bets in the broader Tesla story,” Ives said.
“(But) the EV demand story is stabilizing in China for Tesla, price cuts are largely over and momentum has returned to Tesla with ai front and center,” he argued.
Tesla shares fell 8.5% in premarket trading to open at $225.43 each.
Related: Veteran fund manager sees world of trouble ahead for stocks
