Tesla Q1 Earnings Preview: Analysts Convinced Of Long-Term Potential Ahead Of The Print

First-quarter expectations for Tesla Inc TSLA are understandably muted, but the sell-side is sold on the long-term prospects for the EV maker.

Tesla is scheduled to report its financial results Wednesday after the market close.

The Tesla Analysts

Morgan Stanley analyst Adam Jonas maintained an Equal-Weight rating on Tesla with a $440 price target.

Wedbush analyst Daniel Ives maintained a Neutral rating and $425 price target.

Analyst-turned-venture capitalist Gene Munster, managing partner at Loup Ventures. 

Investors Willing To Look Beyond 2020, Morgan Stanley Says 

Tesla investors are focused on two things, its full-year unit guidance and the cash burn for the quarter, Jonas said in a note.

Investors are bracing for unit deliveries of 400,000 for the year, the analyst said.

Jonas said he expects the company to lower its full-year guidance given the unprecedented environment, which is atypical of the company.

If the company takes the guidance down to a coronavirus-adjusted 420,000-450,000, investors would react positively, given the implication that a second-half recovery is in the offing, he said.

The buy side is estimating cash burn of $500 million for the quarter, the analyst said. 

With investors discounting a bad first quarter and a weak second quarter, any commentary on forward demand, China ramp and visibility for aprod uction re-start are likely to be the real needle movers, according to Morgan Stanley. 

"Overall, we found sentiment to be strongly positive with the majority of investors willing to look beyond 2020 and focus on the long term trajectory of the company and its exposure to the rapidly growing secular trend of EVs and AVs," Jonas said. 

See Also: Tesla's Stock Keeps Rising After Goldman Sachs Gives Shares $864 Price Target

China A Key Growth Driver, According To Wedbush

Hitting the original 500,000-plus unit delivery threshold for 2020 looks virtually impossible as Tesla navigates through a challenging COVID-19 sales environment that has temporarily closed its Fremont factory and forced the company to announce furloughs and salary cuts, Ives said in a note. 

The analyst said he expects China production and demand, which have significantly rebounded, to serve as a key growth driver over the coming quarters.

"While cash burn will be heightened in the near term due to this anomalous near term global situation, we believe the longer-term trends remain very healthy and $20 of annual earnings power down the road is achievable," he said. 

Investors are also likely to focus on details around Tesla's upcoming battery demand trajectory for Model Y, and any further insights/granularity on the linchpin China market, according to Wedbush. 

Long-Term Tesla Opportunity, Munster Says

Tesla's earnings report is likely to reveal the following, Munster said in a blog post:

• Free cash flow missing estimates.
• The company doing away with the June quarter delivery guidance in the wake of the uncertainty.
• Positive order trends entering the pandemic. 

Munster also expects the company to talk of favorable pre-order trends for its Model Y and Cybertruck vehicles. 

With Fremont shut for 33 days, the Street is bracing for a sharp decline in June quarter deliveries, Munster said.

Yet June quarter deliveries could surprise to the upside by coming in flat or only slightly down from the previous quarter, he said. 

Munster sees a sliver lining in the factory shutdowns, as he said they could give the company time to upgrade the Fremont production lines, expand Model Y capacity and improve manufacturing efficiencies.

"We believe the long-term Tesla opportunity is intact and well-positioned when the world returns to 'normal,'" Munster said. 

"With an expanding product line, Tesla should continue to gain auto market share, growing 15-25% faster than the overall auto industry for multiple years."

TSLA Price Action

Tesla shares were trading lower by 2.98% at $774.95 at the time of publication Tuesday.

Photo courtesy of Tesla.