Tesla reported a big first-quarter earnings decline Wednesday night while revenue missed views. Profit margins for the global EV giant also fell below 20% as the company executes an aggressive price-slashing strategy. TSLA tumbled Thursday as a number of analysts revised stock price targets.
A double digit number of firms dropped TSLA share price targets late Wednesday and Thursday in reaction to Tesla first-quarter earnings.
"With no rose colored glasses: margins are now a delicate issue that are keeping Tesla investors up at night," Wedbush analyst Daniel Ives, a longtime Tesla bull, wrote.
Ives maintained an "Outperform" rating on Tesla stock and dropped his price target to 215, down from 225.
"This margin compression and price cut narrative must be carefully managed over the coming quarters as it now emerges as a clear overhang on the stock," the analyst said.
Meanwhile, Morgan Stanley analyst Adam Jonas revised the firm's Tesla stock price target to 200, down from 220. Jonas kept an "Overweight" rating on TSLA.
RBC Capital analyst Tom Narayan lowered the firm's price target on Tesla to 212, from 217, while keeping an "Outperform" rating on Tesla stock. Citigroup joined the other firms, revising its Tesla stock price target to 175, from 192.
Citigroup trimmed its price target based on how Tesla's margin miss "confirms" vehicle price cuts were not offset to the extent previously expected. Analyst Itay Michaeli expects the stock to pull back and says an entry point in the near-term requires more conviction on demand.
Wells Fargo maintained an "Equal Weight" rating on Tesla stock while adjusting its price target to 170, from 190. Deutsche Bank on Thursday also whittled its TSLA share price view to 200, down from its previous 250 target.
TSLA sank 9.75% to 162.99 Thursday during market trade, trading below the 50-day moving average. This is the second biggest Tesla stock drop in 2023. On Jan. 3, TSLA shares fell 12.24%. Three days later, Tesla stock hit bear market lows of 101.81.
Tesla Earnings
Estimates: Analysts predicted Q1 earnings of 85 cents per share, a nearly 20% drop compared to last year. Wall Street forecast revenue growing 26% to $23.73 billion.
Results: Tesla reported revenue increasing 24% to $23.33 billion with EPS of 85 cents, a 20% decline compared to 2022.
The EV company's total gross profit came in at $4.5 billion, with Tesla's profit gross margin at 19.3%, down from 23.8% in Q4 and 29.1% a year earlier. Wall Street had forecast margins around 21% in the first quarter.
Auto gross margins excluding regulatory credits and leases skidded to 18.3% from 23.8% in Q4. That is below the 20% gross margin "floor" Tesla had previously targeted.
The average Tesla vehicle selling price in Q1 was around $46,850, according to FactSet estimates. That's down from $51,400 in the fourth quarter and $52,100 a year ago.
Free cash flow tumbled 80% vs. a year earlier to $441 million vs. expectations for $3.2 billion. Tesla had negative cash flow, excluding $521 million in auto regulatory credits.
CEO Elon Musk told analysts Wednesday Tesla is "comfortable" with its 2023 production target of 1.8 million. However, Musk on Wednesday downplayed the 2 million production number he used at the end of Q4.
"These are volatile times," he said. "From a production standpoint, if things go well, we've got a shot at 2 million vehicles here. But that is the upside case."
Vehicle Price Trimming: Musk's Take
Musk also said that even with vehicle price cuts, "operating margin remains among the best in the industry."
"We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin," Musk said Wednesday during the earnings call.
Tesla reported record Q1 deliveries earlier in the month, thanks to vehicle price cuts and new U.S. tax credits.
Tuesday night, Tesla trimmed prices in the U.S. for the second time this month. Tesla Model Y prices were cut by $3,000, starting at $46,990. Meanwhile, Tesla Model 3 prices were cut by $2,000, starting at $39,990.
That was Tesla's sixth price reduction in 2023 and follows cuts in Europe, Singapore and Israel on Friday.
Musk said Wednesday "orders are in excess of production" after the latest round of vehicle price cuts.
Tesla Stock: Musk Banks On Autonomous Vehicles
"We expect our vehicles over time will be able to generate significant profit through autonomy. So we do believe we're laying the groundwork here," Musk added.
The Tesla CEO said the "value of a car that is autonomous is enormous," stressing that improvements in Tesla's Full Self Driving (FSD) beta are "really quite dramatic."
"The trend is very clearly towards full autonomy, and I hesitate to say this, but I think we'll do it this year," Musk said, referring to self driving vehicles.
Wedbush analyst Ives wrote Thursday that "many" are not a fan of the "FSD driving the margin story."
"We believe Tesla now walks a tight rope between margin pressure vs. driving stronger Model Y/3 demand globally," Ives said.
The Cybertruck Is Coming
Meanwhile, the Cybertruck remains "on track to begin production later this year," but it's unclear if the initial output will still begin this summer. The Cybertruck status is officially considered "tooling," according to Tesla.
Musk told investors Wednesday Tesla is anticipating a Cybertruck delivery event "probably" in Q3.
Market Holds Key Levels; Tesla Dives But Cathie Wood Hikes PT to $2,000
Tesla Stock
TSLA no longer has a base. If Tesla stock rebounds it will likely form a double-bottom base with a 207.89 buy point, according to MarketSmith analysis.
With Tesla stock slightly below the 200-day moving average, and barring a rebound in the coming days, that 200-day line will likely drop below 208.
Tesla stock is facing resistance at the 21-day and 50-day lines after plunging in early April following earnings.
Third Bridge analyst Orwa Mohamad wrote Wednesday Tesla is "over-reliant" on the Model 3 and Model Y for growth.
Mohamad added investors want to see new product launches soon.
"Tesla's margins will continuously be put under pressure going forward due to price cuts and increased competition," Mohamad said. "However, this should be mitigated by their investment in battery factories and the gradual normalization of raw material and logistics costs."
What's Up With The U.S. Tax Credits?
TSLA's recent U.S. vehicle price cuts are ahead of the implementation of new battery and mineral component requirements to qualify for the full Inflation Reduction Act $7,500 tax credit for EVs.
The Biden administration announced on March 31 that vehicles eligible for the full $7,500 tax credit must have batteries with specific amounts of components from North America and critical minerals sourced in the U.S. or from certain countries.
Vehicles that meet one of the critical minerals or battery components requirements will be eligible for a $3,750 tax credit.
The battery criteria went into effect April 18. On Monday, the U.S. Treasury Department released its list of vehicles that qualify for the full $7,500 tax credit.
The Tesla Model 3 contains a battery from China. Tesla's Model 3 page on its website has a banner informing EV shoppers they are eligible for a tax credit "up to $7,500."
The Tesla Model 3 Rear-Wheel Drive is eligible for a $3,750 tax credit. The Model 3 Performance trim qualifies for the full $7,500. All of Tesla's Model Y vehicles also qualify for $7,500.
Tesla stock sits third in IBD's Auto Manufacturers industry group. TSLA has an 75 Composite Rating out of 99. Tesla stock has an 47 Relative Strength Rating. The EPS Rating is 93 out of 99.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
