Tesla, Suqian City, Jiangsu Province, China, April 20, 2023. Tesla announced its financial results for the first quarter of 2023. In the first quarter, due to drastic price cuts in major markets around the world, Tesla's revenue increased by more than 20%, but its profit decreased by more than 20%. As a result, the company's shares fell more than 6% in after-hours trading on Wednesday. CFTO/FUTURE PUBLISHING/BENZINGA
A Tesla, Inc. bull took down his price target for the stock following the electric vehicle maker’s first-quarter results.
Wedbush’s Daniel Ives maintained an Outperform rating and reduced the price target from $225 to $215, citing further near-term margin softness in the next few quarters.
Tesla reducing the price tags on their Model 3 and Y had cut into their profits as it has given new customers discounts to increase sales against other EV automobile makers.
These discounts haven’t led to higher profits as Tesla saw a drop in 24% in their first quarter profits of this year. The company first quarter sales were higher than the first quarter of 2022 that came to a positive outlook.
Tesla has said many the company costs that includes raw material, commodities, logistics, and warranties have increase as the attempt to increase the production of the 4680 lithium-ion battery has been costly.
“Tesla’s quarterly results could be characterized as mixed, with solid demand metrics, Ives said in a note. Softer margins will weigh down shares in Thursday’s session,” he said.
The result of the profit loss include giving price competition to other EV automakers that build cheaper vehicles including Ford, General Motors, Nissan, Stellantis, Kia and Hyundai.
Telsa is currently facing headwinds regarding the economic outlook as interest rates from the central bank remain bleek.
Tesla CEO Elon Musk defended the decision to low prices for the Model 3 & Y even if it meant lower profits for the company. The shares of Tesla have rebounded this year after losing 65% of their value in 2022.
The decline in the auto gross margin to 19% compared to the consensus of 20.7% was due to price cuts implemented to stimulate demand, the analyst said. “With no rose colored glasses: margins are now a delicate issue that are keeping Tesla investors up at night,” he added.
The near-term margin pain with an eye on volume gain is a strategy in line with Street expectations, but the metric dipping below the magical 20% threshold is a concern, Ives said.
The full-self driving software suite driving the margin story going forward is a narrative that may not go down well with many, he said. The company, therefore, now walks a tight-rope between margin pressure versus driving strong Model Y/3 volume, he added.
“In a nutshell, we remain very bullish on the Tesla story, However, 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,” Ives said.
Tesla showed in its company financials that it’s building company supercharging stations to increase its reach to new customers.
“Tesla is ramping up production at a 45-50% clip, while demand growth is running at 35% at best. This imbalance is causing order backlogs to dry up and inventory to soar,” said Gary Black in a tweet, managing partner of The Future Fund, LLC.
Produced in association with Benzinga
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