Tesla 'Margin Story' Taking Hold, Stock Priced to Perfection, Analysts Say After Q3 Print

Tesla, Inc. TSLA shares advanced strongly Thursday in reaction to the electric vehicle maker's third-quarter earnings beat. 

Here is a compilation of sell-side's take on the quarterly results:

The Tesla Analysts: BofA Securities analyst John Murphy reiterated a Neutral rating on Tesla shares and increased the price target from $900 to $1,000.

Mizuho Securities analyst Vijay Rakesh reiterated a Buy rating and lifted the price target from $825 to $950.

Wells Fargo Securities analyst Colin Langan maintained an Equal Weight rating and upped the price target from $660 to $860.

RBC Capital Markets analyst Joseph Spak maintained a Sector Perform rating and increased the price target from $755 to $800.

Needham analyst Rajvindra Gill maintained an Underperform rating.

Wedbush analyst Daniel Ives maintained an Outperform rating and increased the price target from $1,000 to $1,100.

Credit Suisse analyst Dan Levy maintained a Neutral rating and raised the price target from $800 to $830.

Tesla Has Reached Self-Funding Status, BofA Says: Tesla's third-quarter results were a bit better than expected and generally solid across the board, BofA analyst Murphy said.

Among the metrics, revenue was roughly in line with BofA's estimate; gross margins, especially automotive margins, were stronger than expected; operating expenses were less than expected, leading to a bottom-line beat; and free cash flow was a positive surprise, the analyst noted.

"Additionally, free cash flow was a positive surprise in the quarter, specifically reported FCF of $1.3bn, adding credence to the notion that TSLA has reached self-funding status," Murphy said.

Tesla reaffirmed its outlook, including 50% average annual growth in vehicle delivery, continued growth in operating margin to industry-leading levels and adequacy of liquidity to fund its product roadmap, the analyst noted.

Despite the third-quarter outperformance and Tesla's continued execution, Tesla's stock appears to be priced for perfection, the analyst said. Near-term earnings beats, therefore, may be insufficient to get bulls incrementally positive on the stock, he added.

Mizuho: Tesla Well-Positioned To Drive Multiyear Growth In EVs: Tesla has fared better than others on the auto chip shortages by potentially designing "out of constrained" parts, and should see a tailwind for 2022, analyst Rakesh said.

The company's near-term focus includes Model Y ramps in Berlin/Austin, with production by year-end and deliveries starting in 2022; Model 3/Y ramps at Fremont/Shanghai; Model S/X at Fremont; and Cybertruck launches, pending available cell capacity, the analyst noted. The launch of a $25,000 model for 2023 is less of a priority, he added.

Mizuho continues to see Tesla and Nio, Inc. NIO as well-positioned, with secular growth in EVs driving over 30% CAGR between 2020 and 2030 globally.

Related Link: Is Tesla's Long-Term EV Market Leadership Under Threat?

Raw Material Headwinds Not Cancelled, Wells Fargo Says: CEO Elon Musk's absence from the earnings call could raise concerns about his focus on Tesla versus his other ventures such as SpaceX, Wells Fargo analyst Langan said.

Tesla was reluctant to guide margins higher in the near term, given expected launch inefficiencies due to the Austin and Berlin ramp and cost uncertainty, the analyst said. The auto margins, therefore, are likely to moderate in 2022, he added.

Raw material headwinds, the analyst said, are likely delayed and not cancelled, with prices expected to rise as long-term contracts that helped mitigate the higher raw materials costs expire. The shift to iron phosphate-based batteries would help manage this risk, he added.

"It will take time to shift to this chemistry globally," Langan said.

Software Key To Long-Term Margin Lift, RBC Says: Tesla's margin performance was impressive, RBC analyst Spak said.

"Though some near-term pressure, we have more confidence in longer-term trajectory," the analyst said.

Longer-term, if Tesla can get FSD ready and develop a higher mix of software relative to hardware, that should also have a very nice gross margin uplift, the analyst said. But for the foreseeable future, the business is hardware, he added.

Since FSD appears to be under greater regulatory scrutiny than in the past, it is unlikely to be released in short order, Spak said.

Tesla Stock Priced To Perfection, Needham Says: With some positive momentum on sales and margins, Needham raised its 10-year discounted cash flow growth assumptions, analyst Gill said.

"The premium attached to TSLA shares makes the stock 'priced to perfection,' as we see it, and as such we believe that caution must be warranted," the analyst said.

Disappointing results, such as lower than expected production numbers or performance/cost goals for batteries that are not met, could send the shares lower, he added.

Long-Awaited Margin Story Is Taking Hold, Wedbush Says: Tesla is on an EBITDA run-rate of roughly $13 billion, a staggering number given the company is still in the early stages of building out its global EV moat, Wedbush analyst Ives said.

EV demand for Tesla is outstripping supply by about 30,000 units, the analyst said. However, Giga factories in Austin and Berlin will likely come online over the coming months and expand Tesla's capacity to roughly 2 million units annually over the next 18 months, he added.

"Tesla has a supply issue which will soon be resolved with EV demand robust globally and the long awaited margin story now taking hold," Ives said.

TSLA Price Action: Tesla shares gained 3.26% Thursday, closing at $894. 

Related Link: Why This Tesla Analyst Sees 16% Upside In Shares Ahead of Q3 Earnings