Investors continued to sell Tesla shares on Thursday after earnings disappointment, but Wall Street analysts were waiving some of their biggest concerns, such as weak margins.
Tesla shares TSLA, -2.14% fell 5% in premarket trading, with Nasdaq-100 futures NQ00, -0.48% pointing to losses for Wall Street later. That is on the heels of a selloff on Wednesday that was partly driven by the running battle between retail investors and short sellers of stocks like videogames retailer GameStop GME, +134.84%. Tesla was joined in the red by Apple AAPL, -0.77%, whose results record-setting quarter raised some concerns about whether the technology giant can keep up the pace of growth.
Opinion: Apple justifies its huge valuation, while Tesla…not so much
Tesla reported an adjusted profit in the fourth quarter of 80 cents and a 46% gain in revenue, at $10.74 billion. But Wall Street analysts were looking for adjusted earnings of $1.02 and sales of $10.47 billion. They were also looking for direct guidance on 2021 sales, which they didn’t get.
Weaker margins — net sales made on its automobiles after deducting costs — were another worry that cropped up for investors, noted Citigroup analyst Itay Michaeli. Automotive gross margin excluding credits came in at 20.7% versus expectations for 24.2% and 20.9% a year ago, he noted.
“Though we don’t think the quarter changes the LT [long-term] bull/bear debate much, the softer Q4 gross margins, (on declining ASPs — vehicle average selling prices) will likely be viewed as a negative to the prevailing bull case around supply and demand,” said Micheali. Among the Tesla bears, Citi rates Tesla a sell/high risk with a $159 target price.
Outside of lower prices, margins were weighed by a $267 million stock-based compensation award linked to Tesla Chief Executive Officer Elon Musk’s 2018 package, alongside price reductions and change costs on Models S and X and price cuts on the China Model 3, noted Ben Kallo, senior research analyst at Baird.
But he urged some calm on this front. “While disappointing, we view these additional costs/price reduction as necessary to fuel long-term growth and ephemeral in nature. In China, particularly, we view price reductions as prudent steps to stunt the growth of increasingly well-funded domestic upstarts,” Kallo told clients in a note.
Kallo upped his price target on Tesla to $736 from $728 a share and stuck to an outperform rating. The guidance from Musk was “robust, particularly long-term, albeit more vague” on 2021 in particular, he said, but added he is sticking with its own 2021 volume expectations, lifting it from 856,000 to 859,000.
Dan Ives, an analyst at Wedbush who rates Tesla as neutral with a $950 price target, described the latest results from the electric-car maker as “robust,” and argued that automotive gross margin remains in a “healthy range,” despite investor worries. Software upgrades and strong growth from China are driving Tesla’s growth story, he added, in a note to clients.
Citi’s Michaeli also highlighted comments from Tesla management, which made “confident” noises about the rate of improvements to full self-driving technology (FSD) this year.
“We continue to believe that FSD/AV [autonomous vehicles] will be a very important part of the Tesla story this year,” he said, but added that they would like to see “more evidence” of progress on that front.
Tesla shares have gained a stunning 662% in the last 12 months, while the S&P 500 SPX, -2.57% has gained 14%.
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