What To Look For In Tesla Earnings – 11 Key Factors

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Tesla (TSLA) (716.80 +17.70) after Jefferies analyst Philippe Houchois upgraded the stock to Buy from Hold and lifted his price target to $850 from $700.

At the root of his bullish call is strengthening global demand for electric vehicles (EVs) and the prospects for stronger gross margin as product mix turns more favorable heading into 2022.

On the former point, it’s not difficult to understand the optimistic sentiment. From a broader perspective, EV production is accelerating on a massive scale with U.S. auto manufacturers confirming last week that a 40% annual sales target for EVs by 2030 is the goal. A few years ago, that number may have seem unrealistic, but rapid consumer acceptance of EVs has made that target attainable. During TSLA’s Q2 earnings conference call on July 26, CEO Elon Musk commented that consumer support and interest for EVs is reaching an inflection point.

TSLA’s robust Q2 results certainly supported that claim as the company achieved record quarterly deliveries and record quarterly profit.

One blemish in the report was that ASPs decreased again, this time by 2% yr/yr, due to a higher proportion of China-made vehicles (primarily Model 3) in the overall mix. However, as Houchois points out, FY22 should benefit from a more favorable model line-up.

A key factor supporting a potential boost to ASPs, and, by extension, automotive gross margin, is the launch of TSLA’s new Austin, TX assembly plant. Initially, the facility will roll out a newly-designed Model Y crossover, which will also be manufactured at Giga Berlin. Deliveries of the new Model Y are expected before year end.

The Austin plant will also be home of TSLA’s new Cybertruck. Following the Q2 report, there was some disappointment that production of the bold-looking (some may say “odd-looking”) Cybertruck could be pushed out to 2022 due to the prioritization of Model Y. Initially, production was expected by the end of this year. That possibility was confirmed today after TSLA published on its website that customers can “complete configuration as production nears in 2022.” Besides the updated production timeline, what stands out is the Cybertruck price, which ranges from 39,900-69,900. In comparison, the price for a Standard Range Plus Model 3 is $35,690, with the most expensive Performance version costing $52,690.

Importantly, TSLA’s automotive gross margin has been expanding, even with an unfavorable pricing mix. In Q2, automotive gross margin expanded by 313 bps yr/yr to 28.4%, driven by improving production efficiency and cost optimization efforts. Those efficiencies aren’t likely to diminish, especially if the supply chain and chip shortage headwinds abate later this year.

An intensifying competitive landscape is a viable risk that investors should consider, but TSLA’s strong brand name and the sheer size of the EV market lessens this concern, in our view. The bottom line is that the bullish case for TSLA was successfully made today via the upgrade, and that the path of least resistance for the stock over the longer-term still seems to be higher.