Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

All Eyes on Tesla (TSLA) Stock Ahead of Earnings; Wedbush Remains Neutral

As Tesla’s (TSLA) stock is up 45% over the past six weeks, Wednesday may be the most important day of the year for the company.

The electric car giant will release earnings tomorrow, and investors are eager to see solid numbers to back-up the recent stock surge. Specifically, investors will be looking at Model 3 gross margins and management guidance for the next quarter and remaining of the year. The company said it has become more efficient with building the Model 3, indicating improved growth margins, while another recent price cut makes investors curious to see if management believes demand is still strong moving forward.

The market has divided itself into two camps. The bulls argue that the worst is behind Tesla as it’s focusing on getting the business growing. The bears argue that the market is too optimistic about Tesla’s prospects for expanding electric-car sales. Wedbush analyst Daniel Ives has found himself in the middle. Ahead of the print, Ives reiterates a Neutral rating on Tesla stock, with a $230 price target. (To watch Ives’ track record, click here)

Since Tesla has already reported stronger delivery numbers, Ives says “all eyes… will be around the margin profile in the quarter and most importantly Tesla’s profitability outlook for the next few quarters.” The analyst continues “to believe that despite the impressive 2Q demand rebound, the ability to hit its aggressive FY19 unit guidance of 360k to 400k will be a Herculean task.” 

Looking ahead, Ives believes that if the company can show sustainable unit demand the next few quarters, this would mark a “major inflection point in the Tesla story and a potential thesis changer for the skeptics moving forward.” But demand continues to be a “hot button issue on the Street,” which is prompting Ives and other investors to hold back for now. 

Aside from demand and deliveries, profitability concerns remain. The analyst points out that gross margin needs to tick up, and the recent price cuts for the Model 3 are adding to this issue. While the company was able to see high margins for its high-priced S and Y models, the Model 3 is its affordable and mainstream offering and is expected to continue leading the company forward. Without strong margins, many are concerned there is not a clear path to sustained profitability. But the counter-argument is that if demand and deliveries increase, efficiencies will increase and margins improve. Investors are hoping that is the case for this quarter. 

All in all, though Tesla stock is up big over the past month, many on Wall Street are still waiting for sustained results. TipRanks analysis of 26 analyst ratings shows a Hold consensus, with eight analysts saying Buy, six Hold and 12 Sell. The average price target among these analysts stands at $262.64, which implies a slight upside potential from current levels. (See TSLA’s price targets and analyst ratings on TipRanks)


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