The focus of Tesla Inc (NASDAQ:TSLA)'s upcoming second quarter earnings report will once again be its margins after the electric vehicle (EV) maker has repeatedly slashed its prices in 2023, according to analysts at Wedbush.
“While 2Q headline numbers of $25 billion [in revenue] and $0.81 [in earnings per share] look beatable, the big focus on this print will be auto gross margins (excluding credits) to gauge the impact of the price cuts and what this means for margins going forward,” the analysts wrote in a note to clients.
“Commentary from Musk on any more price cuts and the margin trajectory for 2H will be front and center for Tesla bulls/bears to debate this hot-button issue.”
The analysts expect auto gross margins (excluding credits) of about 17.5% in a “trough quarter” for gross margins. They forecast margins will “ramp back up over the coming quarters and back towards the 20% level heading into 2024.”
The analysts believe Tesla’s aggressive price cut strategy was near-term pain for long-term strategic gain.
“In our opinion, Musk & Co. continue to play chess while others play checkers as this price cut move came from a position of strength for Tesla with EV competitors coming from every angle around the globe,” they wrote.
“So far this has been a homerun strategy and now it’s all about margins trough, no more price cuts, and demand remaining firm with some Model 3 and Y refreshes also likely on the horizon followed by the drumroll for the Cybertruck later this year.”
Wedbush’s analysts maintained their ‘Outperform’ rating on the stock with a $300 price target. Tesla shares traded hands at US$286.90 on Monday afternoon.
“Deliveries in 2Q of 466,000 versus the Street's estimates of 447,000 were a strong beat and have helped fuel this rally in the stock that we believe should continue and see an upward trajectory into 2H,” they wrote.
Tesla stock could have an “Amazon Web Services moment” as investors recognize its underlying sum-of-the-parts valuation with batteries and artificial intelligence, the analysts believe.
“We believe ‘what has changed’ for the Street over the last few months is the recognition with the Ford and General Motors supercharger partnerships that Tesla's sum-of-the-parts valuation is now finally starting to get tapped into,” they wrote.
“This reminds us of when the Street started to realize the margin story and valuation at AWS for Amazon and the growth/margins of the Apple Services story in Cupertino. Both of these dynamics were key to the re-rating of both Amazon and Apple over the years despite many pushing back against the valuation thesis.”
Tesla will hand down its second quarter results after the market close on Wednesday, July 19.
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