Tesla Analysts Unimpressed By Q1 Earnings: 'Not Much To Write Home About'

Tesla Inc TSLA shares traded lower by 4% on Tuesday after investors took profits in the stock following its first-quarter earnings beat.

For the first quarter, Tesla reported adjusted EPS of 93 cents on $10.39 billion in revenue. Both numbers beat consensus analyst estimates of 79 cents and $10.29 billion, respectively. Revenue was up 74% from a year ago.

Tesla also reported a record GAAP net income of $438 million during the quarter, but skeptics were quick to point out that Tesla’s entire net profit came from its $518 million in regulatory credit sales. Tesla also reported $101 million in net income from sales of Bitcoin BTC/USD.

Tesla reported a record 184,800 vehicle deliveries in the first quarter. The company said it produced zero Model S or Model X SUVs in the first three months of 2021, but CEO Elon Musk said deliveries of the updated Model X and Model S versions will begin in May and the third quarter, respectively.

See Also: Where Are Tesla's Profits Coming From? (Hint: It's Not Cars)

Questionable Earnings Quality: Morgan Stanley analyst Adam Jonas said Tesla’s quarter was noisy, but it did little to change the long-term narrative.

“For investors constructing an EV portfolio, at least, we see the risk of not owning the shares as exposing investors to greater risk of underperformance than by actually owning the shares,” Jonas wrote in a note.

Needham analyst Rajvindra Gill said Tesla’s reliance on regulatory credit sales and now bitcoin trading did little to ease concerns over the viability of its core auto business.

“The shares remain expensive, we believe, with our 10-year DCF analysis suggesting a value of $398/share even with ambitious growth priced in (approximately a 30% free cash flow CAGR for 10 years, resulting FCF of $35B on $158B of sales),” Gill wrote.

GLJ Research analyst Gordon Johnson said the more cars Tesla sells, the more losses its auto business generates.

“Despite record volume sales in 1Q21, due mainly to aggressive price cuts to move volumes (TSLA's ASPs fell -5.8%/-14.8% QoQ/ YoY in 1Q21), TSLA's core business of selling cars lost more money in 1Q21 than it did in 4Q20,” Johnson wrote.

Competition Coming: Bank of America analyst John Murphy said Tesla’s numbers were “not much to write home about” given the boost gross margins got from regulatory credit and bitcoin sales.

“The bottom line beat is entirely attributable to the aforementioned Bitcoin gain and lower interest expense from debt repayments, while free cash flow was also modest,” Murphy said.

CFRA analyst Garrett Nelson said Tesla’s current valuation seems fair given it will be facing an accelerating wave of EV competition from both legacy automakers and other EV startups.

“Shares traded slightly lower post-release, which we think is because TSLA didn't provide specific 2021 sales volume guidance, but we view that is a calculated move that gives Musk greater flexibility,” Nelson wrote.

TSLA Ratings And Price Targets: Morgan Stanley has an Overweight rating and $900 target.

Needham has an Underperform rating.

GLJ Research has a Sell rating and $67 target.

Bank of America has a Neutral rating and $900 target.

CFRA has a Hold rating and $770 target.

Tesla's stock trades around $710 at publication time.