Tesla Is Extending Lead In EV 'Arms Race' But Risks Remain: 4 Analysts React To Record Q1

Electric vehicle giant Tesla Inc TSLA reported record revenue, vehicle deliveries, operating profits and operating margins in the first quarter. Analysts reacted to the earnings report with several raising their price targets and outlook.

The Tesla Analysts: Wedbush analyst Daniel Ives had an Outperform rating and a $1,400 price target on Tesla.

Morgan Stanley analyst Adam Jonas had an Overweight rating and a $1,300 price target.

RBC Capital Markets analyst Joseph Spak had a Sector Perform rating and raised the price target from $1,035 to $1,175.

Wells Fargo analyst Colin Langan had an Equal Weight rating and raised the price target from $910 to $960.

The Analyst Takeaways: Wedbush's Ives highlighted the efficiency Tesla displayed in the first quarter with strong production, despite supply chain issues.

“The all-important GM (gross margins) were 32.9% vs. the Street’s 31.0%,” Ives said.

Ives noted strong production guidance of 50% growth with the potential for 60%.

“In a nutshell, Tesla is extending their lead in the EV arms race and once Austin and Berlin are fully ramped over the coming months, the expanded production capacity will be a linchpin to meeting the growing Tesla demand.”

Morgan Stanley's Jonas also highlighted the lead Tesla had in the electric vehicle sector and asked, “Where is the competition?”

“It’s not so much the strength of TSLA’s 1Q that is impressive, but their gap to the competition,” Jonas said. “The more we see out of Tesla, the more we are concerned about the rest of the industry’s ability to play catch-up.”

Jonas pointed to the vertical integration shown by Tesla in the quarter and its success with a limited number of models versus competitors such as General Motors Company GM which is targeting 30 electric vehicle models by 2025.

Another key piece in the earnings report for Jonas was the company paying down debt and its rapid growth ahead of capex spend.

“Tesla is nearly debt-free after paying down approximately $2bn of debt in the quarter. Let that sink in. Tesla is among the world’s most highly valued manufacturers and it has zero industrial debt.”

RBC Capital Market's Spak said the strong free cash flow from Tesla was tough to ignore.

“So the power of Tesla’s model is coming through and while legacy OEMs may view this as a target for how profitable EVs can be, we believe it could be years (if ever) before they reach the margins Tesla currently enjoys on their vehicles,” Spak said.

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Risks Remain: Ives saw a “lingering overhang on the auto space,” but noted strong guidance from China showed a massive second half of the fiscal year could be coming from the electric vehicle giant.

Ives also saw a risk with production in China due to factory shutdowns, something that was mitigated by Elon Musk on the earnings call.

“Musk on the call talked about a very quick production ramp already happening in China, which was music to the ears of investors on pins and needles."

Spak, who raised the price target, remained on the sidelines due to some risks for Tesla and its already high share price.

“Tesla lost almost a month of production from Covid restrictions in Shanghai and thus 2Q22 production and deliveries should be impacted,” Spak said.

Spak said Musk estimated production could be the same in the second quarter as the first.

The major issue of concern for Wells Fargo's Langan was the rising costs of raw materials for Tesla.

“We remain Equal Weight given valuation, the risk of increased regulatory scrutiny, and high long-term volume targets,” Langan said.

Rising risks of regulation for Autopilot and FSD weighed heavily on the analyst.

TSLA Price Action: Tesla shares are up 3.23% to $1,008.78 on Thursday at market close.