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The Ratings Game: Tesla earnings ‘strong,’ but Wall Street ‘not willing to bet on’ latest robotaxi vehicle

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Tesla Inc.’s record quarterly earnings got praise from Wall Street, with the stock rallying more than 7% Thursday and analysts voicing just a few concerns about the ramp ahead for the EV maker’s newest factories.

Tesla
TSLA,
+3.23%

late Wednesday reported first-quarter results that zoomed past expectations, with revenue pushing toward $19 billion despite factory shutdowns in China and ongoing supply-chain problems.

Chief Executive Elon Musk was on the earnings call with analysts, and put a timeline on the newest Tesla vehicle: A dedicated “robotaxi,” without steering wheel or pedals, that would hit volume production in 2024.

That part of the post-results news got a chilly reception from most Wall Street analysts.

Toni Sacconaghi at Bernstein said he was “not willing to bet” on the robotaxi. From both a technical and regulatory perspective, the 2024 timeline is “unrealistic,” he said in a note to clients.

Sacconaghi said he worried about “how Tesla will fulfill its growth plans of 50%+ annual growth (i.e., 3.4M units in 2024, 5M in 2025) with a limited product suite.”

Many on the Street believe Tesla should instead focus on an electric vehicle that would sell for less than $25,000, sometimes dubbed the Model 2.

Related: Twitter gave rise to Elon Musk’s fame, and amplified his ideas

Tesla’s Model 3, initially planned to be a vehicle “for the masses” and cost about $35,000, starts at $47,000. Tesla’s compact SUV Model Y, now among the EV maker’s most popular offerings, quickly pushes past $60,000 at basic configurations.

On the positive side, Tesla’s operating margins excluding EV credits are at 16%, “at the very high end of auto makers and well above traditional luxury vendors,” Sacconaghi said.

Margins are likely to come down as Tesla “evolves to be a truly mass market player and prevailing supply imbalances alleviate, we believe that margins may continue to improve through the remainder of the year,” Sacconaghi said.

See also: Tesla shows ‘solid’ sales, but COVID shutdowns may come back to haunt it, analysts say

Jeffrey Osborne at Cowen said he remained “skeptical” about the robotaxi as well as “Full Self Driving,” the Tesla suite of advanced driver assistance systems the company said will have a full U.S. release this year, and the humanoid robot Optimus, which Musk on Wednesday said expects to be eventually worth more than Tesla’s auto business and autonomous driving business.

Osborne also worried about the share trajectory. Tesla stock has outperformed the broader equity market by a wide margin, up more than 41% in the past 12 months and down a fraction so far this year.

That compares with gains of around 7% for the S&P 500 index
SPX,
-1.48%

in the last 12 months and a loss of 6% so far this year.

“We commend the execution but are less enthusiastic about the stock at current valuation given likely at peak gross margin coupled with nothing new coming in 22,” Osborne said in his note.

“(We) remain skeptical of progress of Optimus, robotaxis as well as any (high-level autonomy) for FSD.”

Emmanuel Rosner at Deutsche Bank raised his price target on Tesla shares to $1,250, which represents an upside of 20% over Thursday prices, and kept this rating on the stock at buy.

“We view Tesla as best suited to keep outperforming in the current environment given strong demand, pricing, cost performance, and supply chain management to support its volume targets,” Rosner said in his note.

Second-quarter performance will be “challenged” by Shanghai factory shutdowns as well as costs involved with increasing production at Tesla’s newest factories in Texas and in Germany, Rosner said.

Limited production in the Shanghai factory resumed this week, put the problems are likely to cause a “headwind” of around 50,000 units in the current quarter, Dan Ives at Wedbush said in his note.

“Musk on the call talked about a very quick production ramp already happening in China which was music to the ears of investors on pins and needles around this main artery being shutdown since late March,” Ives said.

“It all rests on the China issues seeing no more shutdowns from this point and Berlin and Austin ramping according to plan,” Ives said of future production.

Tesla nonetheless is “extending their lead in the EV arms race and once Austin and Berlin are fully ramped over the coming months the expanded production capacity will be a linchpin to meeting the growing Tesla demand trajectory in 2022 and beyond.”

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