'No Rose-Colored Glasses': Tesla's Auto Gross Margin Dipping Below 'Magical 20% Threshold' Sparks Concern, Says 'Very Bullish' Analyst

A Tesla, Inc. TSLA bull took down his price target for the stock following the electric vehicle maker's first-quarter results.

The Tesla Analyst: Wedbush's Daniel Ives maintained an Outperform rating and reduced the price target from $225 to $215, citing further near-term margin softness in the next few quarters.

The Tesla Thesis: Tesla's quarterly results could be characterized as mixed, with solid demand metrics, Ives said in a note. Softer margins will weigh down shares in Thursday's session, he said.

The decline in the auto gross margin to 19% compared to the consensus of 20.7% was due to price cuts implemented to stimulate demand, the analyst said. "With no rose colored glasses: margins are now a delicate issue that are keeping Tesla investors up at night," he added.

The near-term margin pain with an eye on volume gain is a strategy in line with Street expectations, but the metric dipping below the magical 20% threshold is a concern, Ives said.

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The full-self driving software suite driving the margin story going forward is a narrative that may not go down well with many, he said. The company, therefore, now walks a tight-rope between margin pressure versus driving strong Model Y/3 volume, he added.

"In a nutshell, we remain very bullish on the Tesla story, However, this margin compression and price cut narrative must be carefully managed over the coming quarters as it now emerges as a clear overhang on the stock,” Ives said.

Tesla Price Action: In premarket trading, Tesla shares were sliding 7.10% to $167.76, according to Benzinga Pro data.

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