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Tesla earnings: what to look for as Musk navigates chip shortage and China PR issues

After the ‘Cinderella story ride’ last year for Musk and the company, this year the company’s shares have been more pumpkin

Tesla Inc -

Tesla Inc (NASDAQ:TSLA)’s earnings on Monday evening will be closely followed by investors around the world, with the stock having been among the breakout stars in recent years as boss Elon Musk transformed it from a jam-tomorrow tempter into an auto industry electric vehicle pace-setter.

This year the stock quickly accelerated to an all-time high but the price has screeched 27% lower from those levels – though the share is among the most-bought shares by UK investors in the first half of 2021.

An eighth profitable quarter in a row may not be enough to impress Wall Street, if the first-quarter results were any guide when the company reported underlying income above US$1bn for the first time.

Quarterly production numbers for the electric car manufacturer have already come in ahead of expectations, showing Musk managed to navigate the computer-chip shortages that have hit the wider sector.

However, the chip shortage may drag on and when mixed with supply chain issues and increasing competition in the electric car market, the weaker share price is no surprise.

Q&A and BTC

With a live question and answer webcast to be held from 2.30pm Pacific Time (10.30pm BST), investors will be looking for comments from ‘technoking’ Musk or 'master of coin' Zach Kirkhorn on the outlook for deliveries in coming quarters – as well as maybe something about Bitcoin following comments that the company will start accepting payments in the cryptocurrency.

Developments in China will be of particular interest as local competitors have been ramping up sales and Tesla has not been in the regulator’s good books.

“That extra competition could also undermine the group’s lucrative line in selling carbon credits to other manufacturers,” says analyst Nick Hyett at Hargreaves Lansdown. “While we don’t see a collapse in credit revenues as imminent, any suggestion this crucial source of cash is under threat would raise questions about whether Tesla can fund future expansion without further shareholder support.”

Tesla recently received a black eye from regulators in the People’s Republic due to a software glitch potentially affecting 285,000 vehicles.

That issue was related to the company’s ‘Autopilot’ driver assist and, as it adds to other negative PR issues in China, which is poised to represent 40% of global deliveries for Tesla by next year, “is not the news bulls want to see”, said analyst Daniel Ives at broker Wedbush.

“China demand is a key driver for the long term Tesla growth story and the company must play nice in the sandbox with Beijing around safety issues, otherwise it will be an impediment towards achieving its goals/targets in country.”

After the ‘Cinderella story ride’ last year for Musk and the company, this year the company’s pumpkin-like share price is mostly to do with external issues, as production appears to be on a trajectory to hit around 900k for the year, said Ives.

“While China was bumpy during the quarter we believe Musk & Co have navigated the safety/PR issues better than expected and are now in a position to accelerate market share in this key region over the next 6 to 12 months,” he added, saying other focus areas will be a potential Bitcoin impairment charge, factory updates for Berlin and Austin, plus updates on much anticipated battery technology improvements in coming quarters.

Even more bullish than Ives's US$1000 price target is the US$3000 target of Ark Invest boss Cathie Wood, who explained her thoughts in a new video interview today, reminding investors not to forget about Tesla's non-auto businesses, notably its energy storage business, but also its advances in robotics, artificial intelligence and software.  

“We believe the reason there is such a big inefficiency in Tesla’s valuation is the short-term time horizon of analysts and the wrong analysts following it,” said Wood in an interview on the RealVision online network.

“Tesla is a technology company, but it’s not just one technology company,” she said, adding that Ark has three analysts working on Tesla forecasts rather than just an automotive number-cruncher as most Wall Street firms.

 

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