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Are Tesla's Margins Under Threat?

4 years 4 months ago
Tesla’s (NASDAQ:TSLA) financial performance has been nothing short of stellar over the last couple of quarters. Notably, the company’s gross margins for its automotive business, excluding its regulatory credit sales, rose from just about 22% in  Q1 2021 to 30% in

Tesla Stock: Short-Term Turbulence but Long-Term Upside, Says Analyst

4 years 4 months ago

After 65 days in lockdown, normality is finally coming back to Shanghai. Restrictions are being swiftly lifted with the city breathing a collective sigh of relief. However, Tesla’s (TSLA) reliance on its Shanghai Gigafactory is set to impact June quarter results, so believes Mizuho analyst Vijay Rakesh.

Although the 5-star analyst thinks the Fremont and Shanghai factories can potentially account for ~1.4 million of the 1.5 million units targeted in C22E, with Shanghai residents/logistics until very recently still mostly in lockdown and the Gigafactory Shanghai in “partial utilization,” Rakesh thinks the factory’s reopening will likely be “slower than expected, with headwinds in intra- and inter-city logistics as a near-term June quarter drag.” However, this potentially sets up a stronger rebound in the September and December quarters, as supply chains improve, and the Berlin facility ramps.

Elsewhere, the analyst thinks the “streamlining” of Tesla’s manufacturing process is coming along nicely. 50% of vehicles (including every standard Model 3) are now fitted with LFP (lithium iron phosphate) batteries which improves costs - Rakesh thinks they are reduced by around 25% compared to NMC (Nickel Manganese Cobalt) batteries – whilst also reducing the impact of rising prices for cobalt and nickel (nickel prices have more than doubled over the past year).

Additionally, the new lower-cost 4680 structural batteries could “drive better profitability” by lowering costs by around 50%. Although they are currently only used in Giga-Austin (in delivery) and Giga-Berlin, with the 21700 battery still being used at Fremont.

Rakesh also highlights Tesla’s installed base as providing the necessary data required for the company’s FSD (full self-driving) efforts. With an imaging database of more than 3 billion miles and an installed base of ~2.7 million (as of Apr'22), these should be “tailwinds to AI training for its FSD.” For Robotaxis, Rakesh reckons Tesla expects AI FSD operating costs will be around ~$0.20/mile, and anticipates it can charge $1/mile (lower than the present “fully loaded” costs between $1.75-$2.50), suggesting a profit of $0.80.

All told, Rakesh rates TSLA shares a Buy along with a 12-month price target of $1,300. The figure makes room for one-year growth of 76%. (To watch Rakesh’s track record, click here)

Turning now to the rest of the Street, where the average price target is a more muted $930.55, suggestive of ~25% gains in the months ahead. Street analysts have varied opinions on the stock’s expected trajectory; based on 14 Buys, 10 Holds and 6 Sells, TSLA qualifies with a Moderate Buy consensus rating. (See Tesla stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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