Earnings season is upon us once again, and once the bell rings to signal an end to Wednesday’s trading (April 20), Tesla (TSLA) will step up to the earnings plate.
Ahead of the print and subsequent earnings call, there are several issues Morgan Stanley’s Adam Jonas thinks investors should pay attention to.
While the analyst notes that demand is obviously not a problem for Tesla right now, supply and input costs are. Supply constraints have yet to abate, while to “offset” rising input costs, Tesla has increased the prices of its vehicles.
Volume wise, Jonas anticipates Tesla will deliver 1.460 million units in FY22 (amounting to 56% year-over-year uptick), although meeting that target appears “increasingly dependent” upon China, with the country having seen a “confluence of strong demand and COVID-related disruption.”
Helping to reduce the company’s dependence on China for “volume and profitability longer term,” and dilute Freemont’s “contribution” to total units, production has kicked off at both the Berlin and Austin facilities.
“That’s great,” says the 5-star analyst. “But that doesn’t mean investors should not expect significant issues with the initial ramp-up of both factories in the normal course.”
Rising costs have also affected lithium prices, with Musk recently commenting these have reached ‘insane’ levels, whilst adding Tesla might need to become involved with lithium mining/refining. Although that is not completely out of the question, Jonas assumes the company would not want “direct exposure to the environmental/tailings risk related to mining operations.”
There’s also the prospect of the company becoming a “renewable energy on-shore infrastructure play” and Jonas ponders on Tesla’s strategy around ESS (energy storage systems) battery production.
Looking far ahead, Jonas’ current expectation is that by 2040 Tesla ESS accounts for less than a 1% share of this “potential market.” However, once the company proves its ability to “produce a higher volume of batteries (supplied by greater amounts of domestically produced/securely sourced batteries),” the analyst anticipates it will provide “greater disclosure and strategic attention” on the ESS angle.
So, down to business, what does it all mean for investors? All in all, there’s no change to Jonas’ Overweight (i.e. Buy) rating or $1,300 price target. This target conveys his confidence in TSLA's ability to climb ~32% from current levels. (To watch Jonas’ track record, click here)
Looking at the consensus breakdown, Tesla’s Moderate Buy consensus rating is based on a mix of 15 Buys, 5 Holds and 6 Sells. The Tesla bears, though, are having a big impact on the average price target; at $1,006 and change, the figure implies shares will remain rangebound for the foreseeable future. (See Tesla stock forecast on TipRanks)
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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.