'Concerning Trend': Wall Street Weighs In On Tesla's Q2 Earnings

Tesla Inc TSLA shares plummeted on Thursday after the company reported a much larger-than-expected loss in the second quarter and fell short of consensus revenue estimates as well.

Tesla reiterated its full-year vehicle delivery guidance of between 360,000 and 400,000 units and once again said the company will be profitable in the second half of 2019. However, the market was disappointed with weak auto margins and yet another quarter of tremendous cash burn.

Several analysts have weighed in on Tesla following the report. Here’s a sampling of what they’ve had to say.

Elusive Profitability

Wedbush analyst Daniel Ives said profitability remains elusive for Tesla.

“Herein remains the concerning trend, that unless self driving functionality and other software upgrades are sold with Model 3 units it will be a major challenge for Tesla to ramp its business model and gross margin profile in line with long term targets and therefore show profits on an ongoing basis,” Ives wrote.

Bank of America analyst John Murphy said the second-quarter numbers likely didn’t change the minds of Tesla bulls or bears.

“While TSLA now believes its ‘business has grown to the point of being self-funding,’ we remain skeptical that the company can do so without pushing/pulling working capital timing and/or thrifting capex and investment spend (an imprudent long-term strategy for a growing company),” Murphy wrote.

Management Turnover

Morgan Stanley analyst Adam Jonas said the departure of CTO JB Straubel may have been the biggest Tesla news on Wednesday.

“Investors may question what motivated the 15-year Tesla vet to give up direct operational responsibility at this time,” Jonas wrote.

Canaccord Genuity analyst Jed Dorsheimer said the biggest takeaway from the report and earnings call is that Tesla claims it's now self-sustaining.

“While bears will focus on the wider loss, we feel the FCF results suggest TSLA has a bit of time to grow into its profitability expectations,” Dorscheimer wrote.

Questionable Guidance

Baird analyst Ben Kallo said Tesla’s $5 billion cash balance and $614 billion in cash generation suggest the company has plenty of financial flexibility to fund its growth.

“Investors may focus on soft GAAP margins and the bottomline miss, though results were adversely impacted by timing of credits (auto gross margin expanded ~200bps sequentially, excluding credits) and other restructuring/foreign exchange impacts,” Kallo wrote.

Needham analyst Rajvindra Gill is skeptical of Tesla’s projections to be breakeven in profitability in the third quarter and profitable in the fourth quarter.

“Given the company’s significant loss this quarter and its history of profitability issues, we remain cautious on these expectations,” Gill wrote.

Ratings And Price Targets

• Wedbush has a Neutral rating and $220 target.
• Bank of America has an Underperform rating and $225 target.
• Morgan Stanley has an Equal-Weight rating and $230 target.
• Canaccord Genuity has a Buy rating and $350 target.
• Baird has an Outperform rating and $355 target.
• Nedham has an Underperform rating and no target.

Tesla's stock traded lower by 14% to $227.41 per share at time of publication.

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