Tesla Analyst Lifts Price Target Ahead Of Q2 But Warns Factors That Dragged Stock By 65% Have Not Gone Away

With less than two weeks to go for Tesla, Inc.'s TSLA earnings report, an analyst raised the price target for the stock. The company reported earlier this month better-than-expected second-quarter deliveries.

The Tesla Analyst: Jefferies analyst Philippe Houchois maintained a Hold rating and upped the price target from $185 to $265, which suggests a 3.44% downside from current levels.

The Tesla Thesis: The second quarter will mark a trough in Tesla's auto gross margin, said Houchois in a note released Monday. The analyst said he expects second-quarter revenue to come in at $24.7 billion, up 6% sequentially and 46% higher than a year ago.

The revenue expectation, which also includes $400 million in zero-emission vehicle credit and $675 million in leasing,  is roughly in line with the consensus estimate of $24.53 billion.

Houchois forecast a gross auto margin of 18.6%, 40 basis points below the first quarter. He sees some mitigating impact coming from easing commodity costs, fixed cost coverage, and IRA support to battery costs.

Among the aspects that Jefferies would focus on during the earnings call are price elasticity of demand, the ramp-up of in-house battery manufacturing, and inventories.

Production has been greater than deliveries for five quarters now and monthly volatility is high, Houchois said, adding that he would like to know optimal inventory levels as Tesla continues to globalize.

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Jefferies said it is modestly upgrading fiscal year estimates, making single-digit adjustments to revenue and EBIT estimates for the 2023-2025 timeframe.

While noting that Tesla shares trade at 6.8 times revenue, 44 times EBIT and 60 times P/E multiples, the analyst said Tesla, though leading auto industry transformation, may not see multiple rerating with auto earnings alone.

The Tesla investment case, according to the analyst, is still a work-in-progress and is dependent on full-self driving and stationary storage.

The analyst attributed the upward adjustment of the price target to the reduction of the discount rate from 9% to 8% and the lifting of long-term growth from 3% to 4%.  The assumptions are premised on the progress on auto-growth and the bottoming of auto margins, he added.

The analyst also cautioned that the issues that dragged Tesla shares down 65% in the second half of 2022 amid demand slowdown amid economic uncertainties and production issues have not gone away.

Tesla Price Action: In premarket trading on Monday, Tesla stock rose 0.61% to $276.11, according to Benzinga Pro data.

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