Tesla reported record revenue and profit for the third quarter, with a net income of $1.62 billion.
Wall Street analysts, on the other hand, were particularly impressed by the company’s strong margins in the face of a global supply chain crunch. The automotive gross margin for the company was 28.8 percent, and the operating margin was 14.6 percent.
Morgan Stanley analyst Adam Jonas, who has an overweight rating and a $900 per share price target on Tesla, has gone so far as to say that the company may be on its way to becoming “the world’s most profitable mass auto company.”
“Annualized 3Q EBITDA is approaching $13 billion… approaching GM and Ford magnitude despite a fraction of the revenues.” “What’s particularly notable is Tesla’s margin performance despite significant cost inflation and a 6% decrease in [average sales price] year on year,” according to the Morgan Stanley note.
RBC Capital Markets analyst Joseph Spak, who rates the stock as sector perform, raised his price target to $800 per share from $755, citing the company’s strong margins as creating multiple options for the future.
“While margins may suffer in the short term, the model’s power is becoming clear.” It will be interesting to see how TSLA uses this (which we believe will return to 3Q21 levels in 2H22) to further their goals. “They could lower prices to increase demand (have talked about a $25k car, though that seems unlikely in the next few years), reinvest in business for other initiatives, or simply let it flow through,” according to the RBC note.
Tesla shares, which outperformed the market in October, were down 1% in premarket trading on Thursday. Investors are now looking into other earnings this week, with particular attention to Moderna stock forecast, Plug Power stock forecast, Fortress Biotech stock forecast
Here are some of the other top analysts’ reactions to the report.
Baird has upgraded its rating to outperform and raised its price target to $888 from $764.
“Tesla reported exceptional profitability as it continues to flex its operational muscles by outperforming its industry peers in delivering strong volumes in an environment marred by supply chain issues while raising profits to an all-time high.” We are raising our price target to $888 because the company, with its efforts in EVs, renewable energy, autonomy, and robotics, is at the crossroads of the world’s transition to a sustainable infrastructure.”
Jefferies has a Buy rating.
“After delivering another impressive quarter of cost leverage and posting EBIT margin above longer term ‘low-teen’ guidance, Tesla is reaching a point where it can better control balancing pricing, margin, and affordability, especially as it approaches a tipping point where software becomes a bigger contributor to the business model.”
Canaccord Genuity – Buy rating, price target increased to $1,040 from $940.
“We remain optimistic about auto gross margin expansion and are looking forward to battery constraints easing and being reallocated to energy products later in 2022.” Following the release of record delivery numbers a few weeks ago, a beat may have been priced in, and shares may experience a ‘buy the rumor, sell the news’ type pullback. We would be buyers at these levels and if there is a pullback.”
Bernstein has a rating of underperform.
Our main issue with the underlying bullish assumptions on significantly higher levels of profitability for Tesla in the long run is the sustainability of higher pricing and margins. Given the industry’s highly competitive nature, we believe that differentiated technological innovation will be difficult to sustain over time, and as a result, pricing power and surplus margins will be competed away.”
“CEO Elon Musk did not participate in the Q3 call; instead, the CFO and VP of Engineering answered investor questions.” His absence may raise questions about his commitment to TSLA over his other ventures, such as SpaceX. TSLA was hesitant to forecast higher margins in the near term due to expected launch inefficiencies as Austin and Berlin ramp and cost uncertainty. Consistent with our cost concerns, we anticipate auto margins to soften in 2022 as BEV raw mat contracts expire or reset. The stock is trading slightly lower after the market, which could be due to cost concerns.”
Credit Suisse – Neutral rating, price target increased from $800 to $830.
“A record margin result was the clear highlight of Tesla’s 3Q beat, with Tesla benefiting from strong volume and favorable mix.” Margin strength. In general, we maintain our Neutral rating but raise our target price to $830 from $800. To be more structurally positive on the stock, we believe the story needs to accelerate more meaningfully beyond Tesla’s core auto business…specifically vehicle autonomy.”
Overweight rating for Piper Sandler
“When it comes to margins, it’s true that Q3 will most likely be the high point – at least for the next few quarters.” Tesla will be opening new factories in Texas and Germany, and commodity inflation is still a concern; these issues will undoubtedly have an impact on margins in Q4 and 1H22. Looking beyond the near-term turbulence, Tesla should eventually achieve structurally higher margins as a result of a shift toward software. We believe there is significant upside potential for Tesla once it completes its transition to a software-first business model, compared to the 23 percent EBITDA margin achieved in Q3.
Bank of America – Neutral rating, price target increased from $900 to $1000.
“Despite the arguably encouraging 3Q:21 results and TSLA’s continued execution, we are concerned that TSLA stock has already been priced to perfection, such that near-term earnings beats may be insufficient to entice bulls to buy the stock.” That said, TSLA’s performance (and valuation) lends credence to the investment stories underlying many of the newer EV automakers.”
Mizuho – Buy rating, with a price target of $950 up from $825.
“TSLA also noted supply chain constraints and rising commodity costs, but it was able to deliver significant cost savings, with an in-house 4680 battery in the testing phase and on track.” Reiterating Buy and raising PT to $950 (Buy; PT $67) as well positioned, with secular growth in EV driving a 30 percent CAGR in ’20-’30 globally, and TSLA highlighting its long-term 50 percent CAGR production target.”
Goldman Sachs has assigned a Buy rating to the company.
Notably, Tesla achieved these results despite a lower Model S/X mix and only a minor impact from recent price increases (per management comments, and with ASPs down 6% year on year).”
Cowen – Market perform rating, price target raised from $580 to $625.
“Tesla delivered EPS growth as record margins reflected higher volumes and improved mix from Model Y strength.” In the short term, margin risk stems from the ramps in Berlin and Austin (unknowns include new factories and new vehicle designs, making ramp timing difficult), while commodity costs remain volatile, with pricing power expected to be used as an offset.”
