Tesla (TSLA) Gains on Q2 Beat, Analysts Mostly Positive but Others Cautious

July 27, 2021 7:32 AM EDT
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Shares of Tesla (NASDAQ: TSLA) are up 1.7% in pre-open Tuesday after the electric vehicle (EV) company delivered a better-than-expected Q2 performance.

Earnings per share (EPS) came in at $1.45 per share vs $0.98 per share expected on an adjusted basis. Sales for the quarter were reported at $11.96 billion to top the $11.3 billion expected, according to Refinitiv.

Overall car sales generated $10.21 billion, of which $354 million was the result of sales of regulatory credits. Previously, Tesla reported it delivered 201,250 electric vehicles for a quarter ended June 30.

“In the second quarter of 2021, we broke new and notable records. We produced and delivered over 200,000 vehicles, achieved an operating margin of 11.0% and exceeded $1B of GAAP net income for the first time in our history,” the company said in a statement.

“Supply chain challenges, in particular global semiconductor shortages and port congestion, continued to be present in Q2. The Tesla team, including supply chain, software development and our factories, worked extremely hard to keep production running as close to full capacity as possible. With global vehicle demand at record levels, component supply will have a strong influence on the rate of our delivery growth for the rest of this year,” it further added.

Further on the supply chain constraints, Musk said that the company struggled to secure enough chips for airbags and seatbelts. As a result, the company has shifted the launch of the Semi truck program to 2022.

“It’s not like you can just whip up a chip fab,” Musk, who said he may skip Tesla’s future quarterly earnings call, joked.

Tesla also reported bitcoin-related impairments of $23 million in Q2.

Following the Q2 report, analysts at numerous firms raised the price target on Tesla. One of them, BofA analyst John Murphy, raised the price target to $800.00 per share from $750.00 on the Neutral-rated TSLA.

“While TSLA is clearly a trailblazer in the EV market and has successfully differentiated itself as an EV incumbent versus newer EV entrants, TSLA’s operating environment is shifting from that of a vacuum to an increasingly crowded space. And while it remains to be seen whether or not TSLA will be dominant over the long-term, we continue to believe that as long as the company can fund outsized growth (new model introductions, capacity installation, etc.) with little to no cost of capital, as it has over the past decade,” the analyst commented in a note.

Wedbush analyst and a prominent Tesla bull, Dan Ives, reiterated its “Outperform” rating and a $1,000 per share price target as he says the company delivered a bullish print and commentary “that should start to change sentiment on this core EV name to play the green tidal wave for the coming years.”

“The margin performance was impressive and will be a focus of the bulls with more Street questions around when profitability can be hit ex EV tax credits now answered with a strong path into 2022,” Ives commented.

On risks, Ives commented that the truck delays are “not moving the needle that much” as investors are focused on Model 3, Model Y, and Cybertruck.

“Overall, Tesla In 2Q Tesla had its back against the wall (chip shortage, China PR/safety issues, competition) and delivered numbers that speak to an EV growth story still in its early innings of playing out,” the Wedbush analyst concludes.

On the other hand, JPMorgan analyst Ryan Brinkman warned that the margin momentum may be tough to maintain. Still, the analyst raised estimates and a price target to $180.00 per share from $160.00 on the Underweight-rated TSLA.

“Tesla’s high valuation leaves little room for less-than-perfect execution, as evidenced by a relatively tepid reaction in the after-market Monday to what was a fairly sizable EBIT beat,” the analyst commented.

However, he also noted “less than perfect takeaways,” including” Semi delayed until 2022, Cybertruck pushed back from late 2021 into 2022, Musk won’t appear anymore in quarterly earnings reports, as well as a potential for failing to “sustain 2Q’s better than expected margin momentum.”

JPMorgan’s cautions take on Tesla’s earnings report was also shared by Citi. Analyst Itay Michaeli reiterated a “Sell” rating and $175.00 price target on TSLA.

"The quarter again demonstrates Tesla’s strong execution in a volatile operating environment, though some of the factors driving Q2 margin upside appear common across automakers this quarter. Outside of the numbers, we thought some of the updates on the call weren’t as positive—including with regard to FSD status/timing - FSD being a key component of our current risk/reward assessment on the stock. Net-net, our initial impressions are mixed as Q2 delivered strong financial performance but with company updates that likely won’t change the LT bull/bear debate all that much,” Michaeli stressed in a note to clients.

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