Tesla ‘s earnings were fine. Wall Street seems upbeat, raising price targets while seeing new potential for artifical intelligence, self-driving cars, and even the ability for Tesla to license its FSD autonomous driving software to other auto makers.
Investors, however, weren’t feeling so sure about the earnings.
Tesla (ticker: TSLA) on Wednesday reported better-than-expected earnings of 91 cents a share and worse-than-expected operating-profit margins of just under 10%. Results were fine. There was still a lot for analysts to discuss following the earnings conference call.
“One of the most important comments from the conference call was Musk discussing FSD and Tesla for the first time confirming the company is already in discussions with one major [auto maker] about licensing FSD technology,” wrote Wedbush analyst Dan Ives.
FSD is short for Full Self-Driving Capability and is Tesla’s top-tier driver-assistance software. It’s the product Tesla hopes will make vehicles truly self-driving and help launch a robotaxi business.
CEO Elon Musk poked some fun at himself during the call, saying he was the boy who cried FSD, acknowledging that his frequent predictions about when FSD will do all the driving have been too aggressive. Still, he said Wednesday evening that FSD software should be better than a human driver by the end of this year.
“To us, this is the golden vision as Tesla is now monetizing its supercharger network with batteries and [FSD] next adding to the sum-of-the-parts story,” added Ives.
A sum-of-the-parts valuation is one way investors can value a company by looking at the businesses it comprises instead of just overall bottom-line earnings. How Tesla should be valued has been long debated. Bulls see more than just a car company, with Tesla also having major operations in electric-vehicle batteries, energy storage systems, solar, self-driving software, and insurance operations, among others. Bears say the bulk of earnings and cash flow will always come from selling cars.
Ives is a Bull, and rates Tesla stock at Buy. He raised his price target to $350 from $300 the earnings release. His wasn’t the only price target bump coming from Wall Street after the report.
Mizuho analyst Vijay Rakesh raised his price target to $330 from $300 a share, pointing out that while Tesla’s profit margins were down it’s still the EV profit leader by a wide margin. Deutsche Bank analyst Emmanuel Rosner raised his price target to $300 from $270.
Both analysts rate shares at Buy. Hold-rated analysts are adjusting targets too. Truist analyst William Stein boosted his price target to $254 from $240. TD Cowen analyst Jeffrey Osborne took his target to $200 from $150.
A bear budged too. Guggenheim analyst Ron Jewsikow took his target to $125 from $112. He rates shares Sell.
Wells Fargo analyst Colin Langan didn’t move his target price. He rates shares Hold and has a $265 price target. Still, he expected shares to trade up modestly after earnings.
They are not. Tesla stock fell 9.7% on Thursday, while the S&P 500 and Nasdaq Composite fell 0.7% and 2.1%, respectively. The 9.7% drop is the same drop that happened after Tesla’s first quarter earnings report.
Q2 numbers look better than Q1 results. Maybe investors are feeling less optimistic about FSD potential, like Langan. “We remain skeptical of FSD without Lidar in [Musk’s] time frame,” wrote Langan on Wednesday evening. Lidar is essentially laser-based radar, and serves as a set of eyes for cars when they drive themselves. Most auto makers use Lidar when implementing advanced driver-assistance systems. Tesla doesn’t.
“We also see licensing FSD as complex given liability risks,” added Langan. The insurance industry needs to determine appropriate insurance policies for owners of autonomous cars.
Starting points matter too. Coming into Thursday’s session, Tesla stock had risen some 137% this year. Some profit-taking isn’t a shock.
Results didn’t change any Wall Street ratings, yet. Overall, 43% of analysts covering the company still rate shares at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
The average analyst price target rose to about $235 from $230 after earnings.