Auto Margins, Production Unit Questions Remain After Tesla's Q4

Tesla Inc TSLA analysts are mixed on the electric vehicle maker's fourth-quarter earnings. The company beat revenue estimates but questions remain on margins and future unit metrics.

Strong Fourth Quarter: Deliveries were strong in the fourth quarter, according to Wedbush analyst Daniel Ives, and demand was strong on a global scale.

“China remains the key to the Tesla bull thesis as this demand story is playing out in the field and ultimately giving Musk & Co. confidence around its 50% growth trajectory EV target for the coming years, which is an eye popping number in our opinion,” Ives wrote in a note.

Margin Questions Remain: Tesla’s earnings per share of 80 cents missed the consensus estimate of $1.02.

“Considering the at best tepid rate of profitability increases, we are worried that the current valuation may be significantly higher than the company’s progress warrants,” said Needham analyst Rajvindra S. Gill.

The analyst said that despite the 28% automotive margins, overall gross margins only went up 100 basis points. The 36% growth in unit deliveries in fiscal 2020 also came in at a lower growth rate than 2018 (+138%) and 2019 (+50%).

Morgan Stanley analyst Adam Jonas said the quarter showed Tesla wants to scale as fast as possible which could cause “short-term volatility to earnings along the way.”

Auto margins of 20.7% came in below 24.2% consensus when taking out the ZEV credits said Jonas. The average sale price of vehicles came down 11% in the fourth quarter.

Tesla could have over $10 in earnings per share in 2025 with red ink now in the rear view mirror, Ives adds.

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Analysts On Production And Deliveries: Implied guidance from Tesla is for 750,000 units delivered in 2021. Bulls want more according to Ives, who sees estimates up towards 800,0000.

Tesla has a “lofty goal” of hitting $188 billion in sales and 3.7 million units delivered in 2030, according to Gill. The analyst calls for 50% downside in shares even at the lofty goal being hit. He said the company will have to hit 100% of production capacity at locations in Berlin, Shanghai and Fremont to hit its current production goals for 2021. The analyst puts an estimate of 820,000 units for fiscal 2021.

Tesla could hit 792,000 units delivered in fiscal 2021, according to Jonas, who predicts Tesla will deliver 5.2 million vehicles in 2030.

TSLA Ratings and Price Targets: Wedbush has a Neutral rating and $950 price target.

Needham rates the stock Underperform with no price target.

Morgan Stanley has an Overweight rating and an $810 price target.

Shares of Tesla closed Thursday's session down 3.3% to $835.43.