In many ways, Tesla Inc.’s June-quarter earnings call echoed its prior one, as executives reiterated their commitment to the long game of autonomy while failing to quell investor concerns about the impact of price cuts on margins.
Tesla’s stock experienced a 3% decline in Thursday’s premarket trading.
Despite these concerns, Potter remains optimistic about Tesla’s long-term prospects and maintains an overweight stance, raising his price target to $300 from $280.
“Management sounds as confident as ever that full self-driving (FSD) software and other A.I. products will, eventually, overwhelm all other considerations,” he affirmed. “We agree with this assessment.”
During the March-quarter call, Tesla executives expressed their willingness to endure short-term margin setbacks resulting from price cuts to boost sales volume and expand their customer base, which could ultimately drive demand for autonomous-driving software options. This time around, they didn’t prioritize margins either.
“We don’t control macro consumer sentiment, but we have an obligation to be responsive to that, to ensure that we’re matching supply and demand and keeping things balanced,” stated Chief Financial Officer Zach Kirkhorn during the latest earnings call.
Goldman Sachs analyst Mark Delaney identified the margin outlook as a potential concern for the stock. However, he predicts that Tesla’s margins will improve from the second-quarter levels due to cost-cutting efforts, albeit at a gradual pace due to possible lower vehicle pricing.
As Tesla continues to make waves in the automotive industry, Chief Executive Elon Musk has revealed that the company is engaged in early discussions with a potential original equipment manufacturer interested in utilizing Tesla’s Full-Self Driving (FSD) product. While the outcome remains uncertain, industry analysts have weighed in on the matter and highlighted the significance of Tesla’s artificial intelligence (AI) capabilities.
Tesla’s Strong Position in AI
Robert Delaney, an industry expert at RBC Capital Markets, emphasized Tesla’s advantageous position in the field of AI. Delaney cited Tesla’s exceptional engineering talent, vertical integration, comprehensive solution offerings, and extensive access to data as factors that place the company ahead of its competitors. Delaney does, however, acknowledge that the timeline for an eyes-off FSD release may be extended due to the historical rate of progress and complexity of the issue.
Production Cuts and Investor Concerns
Tesla’s projections for around 1.8 million unit deliveries in 2023 have gained attention from investors. While some may view these conservative figures negatively, Tom Narayan of RBC Capital Markets sees it differently. Narayan explains that maintaining the second-quarter delivery momentum will easily surpass the 1.8 million target. Additionally, Narayan is particularly pleased by discussions surrounding FSD adoption by an original equipment manufacturer, as he believes that licensing FSD could play a significant role in Tesla’s long-term investment strategy. Furthermore, Narayan suggests that lowering the FSD subscription price from $200/month to $50/month will likely result in a higher attach rate and ultimately contribute to Tesla’s value.
The Potential of Robotaxis
Narayan further emphasizes that licensing FSD could serve as a stepping stone towards Tesla’s vision of robotaxis – a concept that holds immense potential for the company. He believes that robotaxis have the ability to become the most significant contributor to Tesla’s overall value. Narayan maintains his optimistic outlook on Tesla, with an outperform rating and a price target of $305.
Contrasting Views: A Sell Rating
Conversely, Ronald Jewsikow from Guggenheim holds a different perspective on Tesla’s future. While he acknowledges that Tesla has maintained its delivery forecast of 1.8 million units, Jewsikow anticipates challenges ahead. He believes that the lack of volume growth in the third quarter may pose difficulties in managing fixed costs and inefficiencies during production restarts. Jewsikow has adjusted his price target from $112 to $125, but it is still significantly below the current market closing price.
With the ongoing promise of Tesla’s AI technology and potential partnerships on the horizon, the future for Tesla remains compelling. Elon Musk’s vision for the company’s Full-Self Driving product and the concept of robotaxis could revolutionize the automotive industry. While differing opinions exist among analysts, it is clear that Tesla’s innovative approach continues to captivate both investors and automotive enthusiasts alike.
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