'Impressive Performance In A Dark Environment,' Wedbush, Gene Munster React To Tesla's Q1 Results

Tesla Inc. TSLA significantly beat analyst expectations in its first-quarter results, and here's what analysts at Wedbush Securities Inc. and Loup Ventures' Gene Munster think about its performance and outlook.

Impressive Performance In A ‘Dark Environment,' Wedbush Says

In an analyst note following the earnings report, Wedbush said it was "an impressive performance" by Tesla CEO Elon Musk "in a dark environment."

Referring to the GAAP gross margin of 20.6% and adjusted EBITDA margin of 15.9% in the quarter, the analysts said, "this level of profitability is key for the bulls and [it] speaks to a business model which is staying out of the red ink despite this unprecedented COVID-19 dark storm."

Wedbush noted that the large free cash flow loss of $895 million, significantly higher than the Street's estimate of $255 million, was primarily due to a $981 million flow into inventory growth, but it will nevertheless offset some investors.

The analysts believe that the 500,000 delivery target set for the year earlier by Musk was a "virtually impossibility," but the investors are looking at the demand trajectory for the second quarter and the rest of the year as well as Tesla's "cash burn."

Wedbush noted that strong demand for Model 3 in China, despite the novel coronavirus pandemic, remains a "ray of light" for Tesla. The automaker could make 100,000 deliveries out of its newly-built Shanghai gigafactory this year, the analysts said.

The investment firm maintained its "neutral" rating on Tesla's stock with a price target of $425.

Tesla Heads For S&P 500 Induction, Munster Says

Loup Ventures Managing Partner Gene Munster said that Tesla's delivery numbers for the year 2020 are still likely to be between 403,000 and 500,000.

Tesla, in its earnings call, said that it exited Q1 with its largest-ever order backlog, indicating that demand for its vehicles remains strong, according to Munster.

The automaker is considering offering "full self-driving" software as a subscription model by the end of the year, and that's likely to add a "clear benefit to Tesla and the timeline for releasing autonomous driving features," the former research analyst noted.

In line with Wedbush, Munster said FCF would have been positive if not for the inventory growth, which happened due to the pandemic postponing "the end-of-quarter delivery surge."

According to the former Piper Jeffray analyst, there is a "60% chance" that the Palo Alto-based company is added to the S&P 500 index by the end of this year.

The only hook? The induction will require Tesla to have a cumulative GAAP profit over the previous four quarters, but the "June quarter earnings are virtually impossible to predict" at the moment, Munster said.

"The debate around Tesla's future is rooted in the likelihood that the company can sustain profitability, and today's data points are positive signs for overall margins going forward," he added.

Tesla Price Action

Tesla's shares traded 8.8% higher at $871.00 in the after-hours session on Wednesday after closing the regular session 4.1% higher at $800.51.