- Tesla reported second quarter earnings on Wednesday that beat Wall Street analyst expectations.
- Shares of the Elon Musk-led automaker jumped as much as 6% on Thursday before paring some gains.
- Still, Wall Street has a largely bearish view on the company. Here’s what eight analysts said about Tesla following its earnings report.
- Watch Tesla trade live on Markets Insider.
- Read more on Business Insider.
Tesla on Wednesday reported second-quarter earnings that beat Wall Street analyst expectations, and showed the fourth consecutive quarterly profit for the company – a key milestone for potential inclusion in the S&P 500.
Shares of Tesla jumped as much as 6% Thursday following the report, before paring some gains later in the trading session. Tesla has surged more than 280% year-to-date.
Here are the key numbers:
- Earnings per share (adjusted): $2.18 versus an expected -15 cents
- Revenue: $6.04 billion versus an expected $5.2 billion
In addition to beating expectations on earnings per share and revenue, Tesla reported solid GAAP gross margins of 20%, one of the reasons Daniel Ives, a Wedbush analyst, boosted his bull-case target on the automaker to $2,500.
The combination of margins and Tesla's reported adjusted Ebitda of $1.2 billion "speaks to a business model which continues to have significantly lower costs and more production efficiency even in the face of challenging circumstances globally given COVID-19," Ives wrote in a Thursday note.
Tesla announced that it will build three new factories on three continents later in the year. On an earnings conference call, Tesla said that Austin, Texas, will be the US location of its $1 billion Cybertruck factory.
Still, Wall Street is largely skeptical of the automaker - seven analysts have "buy" ratings on Tesla, while 15 have "hold" ratings and 14 say to "sell," according to Bloomberg data.
Here's what eight analysts had to say about Tesla following the company's second quarter earnings release.
1. JPMorgan: "Still highly overvalued"
Price target: $325
Rating: Underweight
"Tesla shares traded higher in the aftermarket Wednesday on an ostensibly sharp earnings beat; a closer look, however, reveals that while results were genuinely better amidst a challenging macro backdrop, fully 87% of the magnitude of the operating income beat vs. consensus was driven by much higher than expected regulatory credit sales, which tend to be lumpy and are expected to decline over time," wrote analysts led by Ryan Brinkman in a note Thursday.
"As more and more automakers develop and market their own electric vehicles, we expect the need to purchase such credits from Tesla will decline over time," said Brinkman.
"Despite the modestly better 2Q, TSLA shares still highly overvalued, as evidenced by comparisons to industry leaders Toyota & VW which are together valued less than Tesla," said Brinkman. Toyota and Volkswagen combined not only sold more vehicles than Tesla in 2019, they generated more EBIT, according to Brinkman.
2. Morgan Stanley: "Investors are now left with a conundrum"
Price target: $740
Rating: Underweight
"Dramatically thesis changing for bulls? Not particularly … but very impressive nonetheless," wrote Adam Jonas Wednesday. "Investors are now left with a conundrum of two forces: (a) does this outstanding 2Q result make the stock even easier to own … or (b) does it market a 'top' where it may be best time to sell?"
Still, Morgan Stanley remains underweight. "Our long-term concerns around sustainability of profit in China, poor auto industry fundamentals, and what we believe to be inevitable competition in EVs and AVs from a host of well capitalized tech firms (AMZN, AAPL, GOOGL, etc.) and OEMs are just not seen by the market," Jonas wrote.
"We think the stock has run to a market capitalization of $300 billion too quickly and has discounted years of growth."
3. Bank of America: "Stock price is detached from current fundamentals"
Price target: $800
Rating: Underperform
"While TSLA's 2Q:20 results came in better than most expectations, we believe this is more than reflected in the ~300% run-up in TSLA stock YTD," wrote analyst led by John Murphy in a note Wednesday.
"In fact, we view the upward spiral of TSLA stock as more driven by the stock itself rather than fundamentals, as the higher the stock goes, the cheaper funding gets to support outsized growth, which is then rewarded by investors in the form of a higher stock price."
"The current ~$1,600+ stock price is detached from current fundamentals, and rather reflects a view that TSLA could access effectively no-cost (equity) capital to fund future growth. In our view it is this self-fulfilling framework that appears to explain the extreme moves in TSLA stock, both to the upside."
4. RBC Capital Markets: "Fundamentally overvalued"
Price target: $850 from $765
Rating: Underperform
"We believe TSLA fundamentally overvalued with ~35% 10-year FCF CAGR required to justify current levels, never mind further appreciation," wrote Joseph Spak Wednesday. "That's a high bar for manufacturer even before Elon stating not trying to be 'super profitable.'"
Spak also pointed out that Tesla was "once again aided by credits," adding that "TSLA would not have become S&P500 eligible without this lever."
"To wit, TSLA just completed 4 consecutive qtrs of GAAP NI totaling $368mm," said Spak. "Credits (which are all margin) over that same time frame ~$1.05bn. Even comparing the credits to LTM GAAP op. income, credits were ~85% of that figure."
5. Goldman Sachs: "We are still uncertain about how the stock will trade"
Price target: $1,475
Rating: Neutral
"We maintain our Neutral rating on TSLA shares, in part due to valuation and in part given that we believe risks for 2H20 deliveries remain in the current operational/macroeconomic environment," analysts led by Mark Delaney wrote in a Thursday note.
"While we believe that Tesla met or in the case of FCF exceeded investor expectations for the report, we are still uncertain about how the stock will trade as we believe strong results were generally expected by the market, and the stock significantly outperformed in the month leading up to the report."
6. Deutsche Bank: "Tesla continues to outperform investor expectations"
Price target: $1,500 from $1,000
Rating: Hold
"Tesla continues to outperform investor expectations, with both of its launches this year (China Model 3 and Model Y) running ahead of schedule on volumes and profitability," wrote Emmanuel Rosner in a Thursday note.
Next, investors will turn their focus to Tesla's potential S&P 500 inclusion and upcoming Battery Day, "where the company could demonstrate great improvements in technology and large capacity additions, growing its lead versus potential EV competition," Rosner wrote.
"Tesla stock has seemingly been making new all-time highs every week, supported by leaks of the strong 2Q performance and expected inclusion into the S&P 500. We believe the upcoming positive potential catalysts for Tesla, combined with the scarcity of investment opportunities in the vehicle electrification space, could keep momentum strong in the near-term."
7. Canaccord Genuity: "Momentum looks to continue unabated"
Price target: $1,623 from $650
Rating: Hold
"TSLA momentum looks to continue unabated," wrote Jed Dorsheimer in a Thursday note. "We see three key factors to drive sentiment higher: 1) battery day and fundamental technology announcements (anticipated in Sept); 2) semi and cybertruck datapoints; and 3) profitable energy BU heading into wildfire/ hurricane season."
"Access to resources is the key for breakout technologies. To this end, we see TSLA's momentum with retail and passive funds with the possibility of being added to the S&P 500 as only increasing resource access for TSLA, which is key to maintaining a lead in new category/ technology."
8. Piper Sandler: "TSLA deserves 'must own' status"
Price target: $2,400 from $2,322
Rating: Overweight
"We still think TSLA deserves 'must own' status following today's results," wrote Alexander Potter in a Wednesday note.
"It's true that the company benefited from a high amount of credit-related revenue in the quarter ($428M), and as a result, margins were higher than they otherwise would have been. S&P 500 eligibility, which now looks assured, likely wouldn't have been possible without credit related revenue," Potter wrote.
"But with COVID-19 forcing Tesla to shutter its main factory for nearly half of Q2, we think it is undeniably impressive that the company may still exceed 500k deliveries in 2020 (in line with guidance at the beginning of the year). With market share inflecting and self-driving roll-outs on the horizon, we can't envision selling TSLA now."