Tesla's strong orders and weak margins in its latest earnings have analysts conflicted on the stock

Published Thu, Jan 26 20237:14 AM ESTUpdated Thu, Jan 26 202310:28 AM EST

Wall Street analysts are divided on Tesla after the electric car company's latest quarterly results. Tesla reported a beat on both earnings and revenue for the fourth quarter. The company posted adjusted earnings of $1.19 per share, compared with expectations of $1.13 per share, according to Refinitiv estimates. Meanwhile, revenue came in at $24.32 billion, greater than the forecast $24.16 billion. Shares of Tesla jumped more than 7% in Thursday premarket trading after CEO Elon Musk said the company could make 2 million cars this year. TSLA 1D mountain Tesla shares rise What's more, the firm assuaged investor fears of weaker growth at Tesla after the company recently issued a round of price cuts on its vehicles. While the move upset customers and triggered a drop in used Tesla prices, they also supported demand for the vehicles. "Thus far in January we've seen the strongest orders year to date than ever in our history. We're currently seeing orders of almost twice the rate of production," Musk said during a call with analysts. For Goldman Sachs' Mark Delaney, that was the "most important takeaway from the call." The analyst reiterated a buy rating on the company, with a 12-month price target of $200. That implies shares could surge nearly 40% from Wednesday's close. "Importantly, Tesla commented that since it lowered prices it has seen the strongest orders year-to-date in its history, with orders running about 2X production. While we believe this rate of orders may not be sustained in light of the weak macroeconomic environment, it would suggest the company is tracking well to our 1.8 mn delivery estimate," Delaney wrote. Other analysts were more negative on the stock outlook, however, saying that Tesla's automotive gross margins, which was the lowest figure in the last five quarters, spelled trouble ahead. AllianceBernstein's Toni Sacconaghi reiterated an underperform rating on Tesla, saying the automaker's latest results and earnings call had "something for bulls and bears," adding he remains "torn" on the company. While the strong orders are promising, the analyst said the auto gross margins were too weak to overlook. "Despite raising our energy storage forecast materially, our FY EPS declines from $3.80 to $3.54 amid lower margins. Moreover, while no one (including Tesla) knows what demand elasticity is, we believe it is uncertain whether surging demand will be sustained, particularly in China, where we believe more price cuts will likely be needed before year end," Sacconaghi wrote. "We particularly worry about what happens in '24, when Tesla will target selling 2.5 - 3M cars with the same lineup, a much more saturated customer base, and relatively modest contribution from Cybertruck. New low-priced offerings can't come soon enough, but we wouldn't count on any prior to 2025," he added. Other analysts had a more measured response. Citi's Itay Michaeli raised his price target to $146 from $137, which is roughly in line with where shares closed Wednesday. Still, he maintained a neutral rating on the firm following earnings, saying the outlook is balanced from here. "Given the heightened focus on the implications of recent price-cuts on demand & gross margins, management's commentary will likely be met with some relief as it injects some much needed visibility," Michaeli wrote Wednesday. "That said, the quarter won't settle all recent debates since Q4 margins did exit softer, FCF missed, and strong order trends will need to sustain beyond the initial uplift. To that, the 2023 delivery guide will likely also draw some debate," he said. Meanwhile, Bank of America's John Murphy reiterated a neutral rating, saying the operational and financial outlook for Tesla shares remains unchanged after earnings, and that the stock is "fairly valued." He raised his price objective to $155 from $130. — CNBC's Michael Bloom and Lora Kolodny contributed to this report.