Tesla shares climb after car maker got ‘tough quarter’ out of the way, and as Wall Street eyes production ramp ups

Wall Street analysts expressed some relief that Tesla Inc. reported second-quarter earnings that beat Wall Street estimates despite tough market conditions, with results boosted by vehicle price increases and the company’s decision to sell most of its bitcoin.

The Elon Musk-led company
also defied expectations that a COVID-19-related shutdown in China would hurt its bottom line. Going into earnings, there had also been concern about slower production ramps at Tesla’s factories in Austin, Texas and Berlin, Germany.

The electric vehicle (EV) maker’s stock had tumbled 26.4% over the past three months through Wednesday, while the S&P 500 index
had lost 9.9%.

The new factories in Austin and Berlin continued to ramp during the second quarter, according to a Tesla letter to investors that accompanied the results. “Gigafactory Berlin-Brandenburg reached an important milestone of over 1,000 cars produced in a single week while achieving positive gross margin during the quarter,” Tesla wrote. “From our Austin factory, the first vehicles with Tesla-made 4680 cells and structural battery packs were delivered to our U.S. customers.”

Fueled by the results, Tesla shares climbed 3.3% in premarket trading Thursday.

Analysts pointed to the production ramps as a positive. “Covid and cost headwinds were offset by production improvements and pricing,” wrote Mizuho Securities analyst Vijay Rakesh, in a note released after the earnings report late Wednesday. “Installed capacity is now at >1.9M/year with Berlin/Texas ramping.”

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“We continue to see solid production ramp, profitability and execution,” Rakesh added.

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Mizuho Securities maintained its buy rating on Tesla and raised its price target to $1,175 from $1,150.

RBC Capital Markets reiterated its outperform rating and kept its stock price target unchanged at $1,100.

“TSLA got their tough quarter out of the way, and we see higher volumes (with more capacity coming on) and margins (price, scale, less inflation) ahead,” wrote RBC analyst Joseph Spak. “We see little to change anyone’s views, but continue to like the name and see margin upside potential from China recovery and Austin/Berlin ramp, both of which could be near-term catalysts for the stock.”

Considering its China shutdowns, Tesla delivered better second-quarter results and outlook than was feared, according to Wedbush analyst Dan Ives.

“China factory shutdown for the months of April/May translated into roughly 70k of deliveries wiped out of the quarter based on our estimates, importantly Musk & Co. saw a robust run-rate in the month of the June and are sticking with their 50% unit delivery guidance for 2022,” he wrote. “This was a very important headline for investors, as with Tesla now on a run-rate to produce 40k cars per week, the company heads into 2023 on a 2 million run-rate.”

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Wedbush maintained its outperform rating and $1,000 price target on Tesla.

Jefferies described its response to Tesla’s results as “relief, considering what could go wrong in Q2,” and noted that the decision to cash in bitcoin avoided a write down.

“Tesla posted sequentially lower numbers but all key P&L [profit and loss] numbers surprised positively with earlier price hikes feeding through ARPUs [average revenue per user],” wrote Jefferies analyst Philippe Houchois. “Tesla continues to set new manufacturing
benchmarks with installed capacity now at 1.9m units.”

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Jefferies maintained its buy rating and $1,050 price target on Tesla.

The auto maker’s results were largely in line with reduced expectations following the China shutdown for part of the quarter, according to Bernstein analyst Toni Sacconaghi, who maintained his bearish stance on the EV maker.

“While demand remains unequivocally strong — with lead times at 6 months+ in some cases — TSLA executives noted that they might be seeing ‘a little’ or ‘some’ impact on demand from higher prices and a weaker consumer; we also note that backlog lead times have diminished slightly in recent months, though that could reflect anticipated higher production,” he wrote, in a note released on Thursday.

While acknowledging Tesla’s innovation and financial success, Bernstein continues to struggle to justify the company’s valuation.

“TSLA’s valuation is higher than all other major auto makers combined, and appears to imply huge volume AND industry leading profitability going forward, which is historically unprecedented,” Sacconaghi wrote. “We believe risk/reward at current levels is not attractive for longer-term investors.”

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Bernstein, which has an underperform rating and $450 price target for Tesla, lowered its full-year adjusted earnings forecast to $13.02 a share from $13.89 a share.

Tesla’s results offered no major surprises, according to Citi analyst Itay Michaeli.

“We think the company continues to execute well in a tough environment, but we don’t think Q2 will settle many bull/bear debates given the puts/takes around the quarter, H2 outlook and other updates,” he wrote, in a note. “We don’t expect a major initial stock price reaction in either direction, though expect street EPS estimates to likely rise on the Q2 bottom-line beat.”

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Citi has a sell rating and $375 price target on Tesla.

Tesla’s shares have fallen 29.7% in 2022, outpacing the S&P 500’s
16.9% decline.

Of 45 analysts surveyed by FactSet, 29 have an overweight or buy rating on Tesla, 11 have a hold rating and 5 have underweight or sell ratings. The average stock price target is $911.74, down from $948.63 at the end of June.

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