Tesla Stock: What Way Will It Go With Analyst Saying Earnings Expectations 'At A Crossroads'

Tesla's stock is down 11% in April and expectations for their earnings report are high.

Blog

Apr 19, 2023 • 4 min read

Analysts are waiting to see the impact of Tesla's price-cutting strategy for 2023 on profit margins. TSLA shares dropped Tuesday.

Tesla's Elon Musk already reported record Q1 sales earlier in the month thanks to vehicle prices cuts and new U.S. Tax credits. Tesla reduced prices on Friday in Europe, Singapore, and Israel.

Tesla had already reduced prices for all U.S. models a week before, making it the third reduction in price this year. Model S now starts at $84,990, while Model X begins at $94,990. Tesla also lowered the entry-level Model 3 price in the U.S. by $1,000, to $41,990. Model Y prices were cut by $2,000, to $49990.

Wedbush's Daniel Ives is a Tesla bull who has been writing for years. He wrote on Sunday that the focus of Wall Street going into the earnings report of Wednesday will be the margin structure following the vehicle price reductions. Ives stated that the "EV arms races are heating up around the world." Ives has maintained his "outperform rating" and set a target price of 225 for Tesla's stock.

"We still strongly believe that Tesla's aggressive price reductions were a clever 'rip off the Band-Aid moment' to defend its EV territory."

Ives said that the move would "put an iron fence" around its customer base. He also asked when the price reductions will stop and what Tesla's profit margins will be like after they do.

Morgan Stanley analyst Adam Jonas said Monday that Tesla "should manage to achieve a decent first quarter result."

Jonas wrote: "It seems to us that Tesla's earnings expectations are at an intersection." Will investors understand the industrial logic? "Will investors see the industrial logic (masterstroke?)

Barclays maintained its "Overweight" rating for TSLA on Monday. The firm has lowered the price target for Tesla's stock to 230 from 275 due to margin pressures.

Analyst Dan Levy stated that Tesla will likely sacrifice some margins to increase sales through price reductions. Levy said TSLA is still "the winner in the EV World."

Analysts expect Q1 earnings to be 85 cents per quarter, which is a drop of nearly 20% compared with last year. Wall Street predicts revenues to grow 26%, reaching $23.73 billion.

Results: Check Wednesday evening.

Wall Street expects a gross margin of around 21% for the current quarter. Tesla's gross profit margins in 2018 were around 29%, while they will be 24.3% by 2022.

FactSet estimates that the average selling price of a Tesla vehicle in the first quarter came to around $47250. This is down from $51,400 during the fourth quarter, and $52,100 one year ago.

TSLA fell 1.28% Tuesday to 184.65. Tesla stock started the day with gains, but then reversed lower. Tesla's stock closed the day at 187.04, up 1%.

The stock has held steady, dipping only a fraction, to 185 in the last week, after falling 10.8% the week before. TSLA faces some resistance on the 21-day line and 50-day line.

According to MarketSmith's analysis, the weekly chart shows that Tesla stock has formed an elongated cup with handle base, with a buy point of 207.89. The daily chart, however, shows a handle entry that is tighter, at 200.76. Both entries are lower than the 200-day moving median, which is a potential warning sign.

A second possibility is that if Tesla breaks above the 50 day line in earnings, it will offer an early entry to the 200-day with some room.

TSLA has recently reduced the price of its U.S. vehicles ahead of the implementation date of new battery and component requirements for EVs to qualify for full Inflation Reduction Act tax credits of $7,500.

The Biden administration announced March 31, that vehicles eligible for a full $7,500 in tax credits must have batteries containing specific amounts of North American components and minerals critical to the vehicle's operation sourced from the U.S.

Vehicles that meet the requirements for critical minerals and battery components will be eligible to receive a tax credit of $3,750.

Battery criteria will be implemented on April 18. The U.S. Treasury Department published its list of eligible vehicles on Monday.

The Tesla Model 3 uses a battery that is made in China. Tesla's Model 3 website banner informs EV buyers that they are eligible for tax credits "up to $7500".

Tesla Model 3 Rear Wheel Drive qualifies for a tax credit of $3,750. Model 3 Performance qualifies for $7,500. Model Y cars are also eligible for the full $7,500.

Jonas wrote on Monday that some investors might wonder how much the volume of the first quarter is "pull-forward" because consumers are taking advantage of the tax credit.

Morgan Stanley analyst: "Our working hypothesis is that Tesla will keep its price-cutting campaign going to make sure their vehicles are cheaper than those of their competitors who qualify for IRA benefits."

IBD's Auto Manufacturers group ranks Tesla third. TSLA is rated 86 out of 99. Tesla stock has a Relative Strength rating of 74. The EPS rating is 99 out 99.

Follow Kit Norton on Twitter @URL to get more updates.