Is Tesla On Track To Deliver Apple-Like Gross Margins Amid China Demand Rebound? Bulls Munster And Ives React To Q3 Earnings

Tesla Inc’s TSLA impressive third-quarter earnings and revenue beat despite the impact of chip shortage indicates a robust electric vehicle trajectory for the Elon Musk-led company in the current quarter and beyond, according to analysts from Loup Ventures and Wedbush Securities.

The Tesla Analysts: Wedbush analyst Daniel Ives has maintained an Outperform rating and a price target of $1,000 on the Tesla stock.

Gene Munster of Loup Ventures believes Tesla's sales could jump from $70 billion next year to $400 billion in 2027 and the stock could hit $2,500 a share then.

The Tesla Thesis: Ives, who has been a long-time Tesla bull, said the company's robust earnings beat speaks of a more profitable company going forward and is key to a higher re-rating on the stock. 

Tesla reported third-quarter EPS of $1.86, beating the street consensus of $1.57.

Ives said the gross margin beat during the quarter shows more efficiency that the electric vehicle maker is seeing with Giga Shanghai in China. Tesla reported a record 28.8% gross margins in the quarter, beating estimates of 25.1%.

See Also: Tesla California Registrations Jump 58%, Model 3 Rides Out On Top

“We believe China demand rebounded in the quarter,” Ives said.

Ives estimates China would represent over 40% of Tesla’s global deliveries in 2022 amid faster electric vehicle adoption. In China, Tesla competes with homegrown rivals such as Nio Inc NIO  and Xpeng Inc XPEV.

Munster said Tesla's impressive profit indicates the company could deliver Apple Inc AAPL-like 40% gross margins.

The Loup analyst based this assertion on "increasing manufacturing efficiencies with Austin and Berlin gigafactories, growth in high-margin software subscription growth driven by FSD pricing and FSD uptake increases, and an expected decline in battery costs over time."

Tesla navigated through the chip crisis well in the third quarter but warned “parts shortages” have factories running below capacity. On  price hikes, Tesla Chief Financial Officer Zach Kirkhorn told investors in a post-earnings call that there’s "an awakening" for electric vehicles and “it's caught us a little bit off guard.”

Price Action: Tesla shares closed 0.18% higher at $865.80 a share on Wednesday. Shares were down 1.36% in the extended hours. 

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