May 01, 2023

Wall Street’s Takes on Tesla's Q1 2023 Earnings

Tesla’s Q1 earnings call saw mixed responses from Wall Street, largely due to how its price cuts affected its margins during the quarter. Still, CEO Elon Musk’s promise for a future of significant profitability based on its Full Self-Driving system is keeping some analysts bullish, despite uncertain economic conditions.

Above: Tesla's Model S and 3 sedans (Image: Casey Murphy / EVANNEX).

During the earnings call, Musk pointed to Tesla’s FSD beta as having the potential to generate significant profits in the future, as detailed in a recent report from Barron’s. Some analysts were disappointed with Tesla’s gross profit margins, which landed beneath Wall Street expectations of 21 percent at just 19 percent.

Musk defended the margins, saying that the company would be well-positioned with a high volume of its cars on the road, once getting past the current state of macroeconomic uncertainty.

“We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” Musk said. “However, we expect our vehicles, over time, will be able to generate significant profit through autonomy.”

"We’re making a car that, if autonomy pans out, and we think it will, where that asset will be worth a hell of a lot more in the future than it is now. It is technically possible to sell it at zero profit, but still have the net present value of future cash flows associated with that asset [be] very significant."

Baird analyst Ben Kallow retained a $252 price target and a Buy rating on Tesla following the call, emphasizing positive hopes for the company in both the near and long terms.

“Musk noted that the most attractive near-term project is to upgrade the existing fleet to include FSD capabilities, which would tremendously increase the vehicles’ asset value,” Kallo wrote in a recent note. “Other longer-term projects include the Dojo supercomputer, Optimus bot, and residential heat pumps.”

Citi analyst Itay Michaeli currently has a Hold rating on Tesla, lowering his price target to $175 from $192 after the earnings call. Michaeli thinks that Musk’s plan for autonomy revenue may have some weight, especially if Tesla can demonstrate continued evidence of the FSD beta improving.

“Tesla’s rationale for pursuing price cuts rested on lifetime vehicle revenue, a view that’s fully aligned with our own industry thesis around [autonomous vehicles] being the biggest value unlock of this [industry] race,” wrote Michaeli. “Still, for this to anchor the Tesla investment thesis, we’d need to see more evidence of [Tesla’s] Full Self-Driving progress given Tesla’s unique approach versus industry.”

Currently, 52 percent of analysts that cover Tesla have a Buy rating on the stock, with the average analyst price target landing at $198 per share. At the time of writing, Tesla’s shares are trading at $156.02, down $4.79 (-2.98 percent) during market open.