Tesla shares posted strong gains on CEO Musk's optimistic outlook. Tesla's stock price rose nearly 11% yesterday, closing at $160.27 per share. It is the best-performing stock in the S&P 500 Index and has risen by 30% so far this year.
Tesla is gradually rebounding from its worst performance ever last year and could post its biggest monthly gain since July 2022.
On Wednesday evening, Tesla announced its financial results for the fourth quarter of last year. The financial report shows that Tesla's operating income in the fourth quarter hit a record high for two consecutive months, and operating profit and net profit also hit a record high in a single quarter. Both revenue and profit were higher than Wall Street expectations: operating income in the fourth quarter was US$24.318 billion, a year-on-year increase of 37%; adjusted net profit was US$4.106 billion, a year-on-year increase of 43%, a new high set in the first quarter; and earnings per share reached US$1.19, a year-on-year increase of 40%.
On the earnings call, Musk said:
So far, in January, we have seen the strongest orders ever.
We are currently seeing order volumes that are almost double the rate of production.
Tesla’s stock price will underperform in 2022 as interest rates rise, competition intensifies and its brand awareness declines. But previous price cuts, coupled with mixed fourth-quarter results, helped boost investor confidence.
Tesla also said it plans to produce 1.8 million vehicles this year, but did not specify whether this was a production or delivery target. The delivery target of 1.8 million vehicles represents a 37% year-on-year increase from 1.37 million vehicles in 2022, and the company aims to increase vehicle deliveries by an average of 50% per year.
Longbridge Dolphin Investment Research believes that Tesla's gross profit margin on car sales this year may drop to a level close to BYD - 16-18%. When the sales range does not change much, the upside can only be achieved by lithium carbonate price reduction, US dollar depreciation and software realization. In the long term, the 50% compound growth rate of car sales remains unchanged, and the gross profit margin of car manufacturing must still reach a target level that is unparalleled among the rest; after the risks have been fully released, the time to truly test the market's long-term belief in Tesla has arrived.
What does Wall Street think? Analysts are buying it
Overall, after Tesla reported strong financial data, about 64% of Wall Street analysts rated the company's stock a "buy" rating, with an average target price of about $206 per share. This is Tesla's highest-ever buy rating ratio, and the average buy rating ratio for S&P 500 stocks is about 58%, according to FactSet data.
Mizuho analyst Vijay Rakesh wrote in a note on Thursday that while car prices are falling, Tesla has cost offsets to help cushion the impact on margins -- including higher utilization rates at two new manufacturing plants and lower raw material prices.
Cowen analyst Jeffery Osborne rates the stock a "hold." After the earnings report was released, he raised Tesla's stock price target from $122 to $140. While he is also concerned about falling vehicle prices and its impact on profit margins, he noted that Tesla's energy storage business is looking better than he expected. Tesla deployed 2.5 gigawatt hours of battery storage capacity in the fourth quarter, a year-over-year increase of 152%.
Bank of America analyst John Murphy also rates the stock a "hold." In a report on Thursday, he said Tesla's results were mixed, but raised his price target to $150 per share from $135. "The stock price appears reasonable," Murphy wrote, adding that investors face a lot of uncertainty about the state of the global economy and Musk's stewardship of Twitter.
Wedbush analyst Dan Ives described Tesla's fourth-quarter performance as: "solid results and positive demand." He rated the stock a buy. After the financial report was released, he raised Tesla's stock price target from $175 to $200. Ives added that the demand comments about Tesla are what bulls want to hear, and that short sellers will now re-enter "hibernation mode."
Demand and profit margins will still be tested But overall optimism
Analysts said Tesla's demand will be tested as economic uncertainty remains. Moreover, Tesla's profit margin is the first thing to pay attention to, because car price cuts may weaken Tesla's profitability.
Baird analyst Ben Kallo wrote in a note on Wednesday: "Demand has become Tesla's biggest issue in 2023 after recent price cuts and concerns about a macroeconomic slowdown. Demand remains strong and is exceeding capacity."
Wells Fargo analysts Colin Langan and Kosta Tasoulis It is expected that Tesla's delivery volume in 2023 will only increase by 720,000 vehicles year-on-year, so the gross profit of cars in 2023 is expected to decline year-on-year. They also forecast Tesla profit margins of 19.3% in 2023, below the company's 20% target.
But overall, analysts are still bullish on Tesla's margins. Dan Ives also said:
Although in the short term, Tesla has sacrificed profit margins for higher sales, we think this is a wise move to build a customer base and resist increasing electric vehicle competition from Detroit and Europe.
Deutsche Bank believes that although Tesla is not necessarily immune to the impact of economic recession, the company should be more resilient in a global recession given the cost leverage it can draw on. Emmanuel Rosner, an analyst at the bank, wrote in a report on Thursday: "Management comments indicate that gross margins should remain above 20% in a single quarter. The first quarter of 2023 is already the trough of the year, and margins will gradually improve throughout the year."
Analysts also said that the U.S. Inflation Reduction Act and the company's increased production at its factories in Berlin and Texas are expected to help Tesla's profit margins.
The gap between Tesla and its rivals may not change anytime soon, especially since Tesla has also implemented price cuts in the past. But Musk said that as consumers' purchasing power is eroded by inflation, price reductions can help attract more ordinary consumers.
For Tesla watchers, the next thing to focus on is the company’s Tesla Investor Day event on March 1, where information about Tesla’s next-generation model platform will be announced. The next-generation model platform is currently under development, which can expand Tesla's potential market.
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