Analysts take Tesla results in stride, but margin concerns remain

Published Thu, Jul 20 20237:15 AM EDTUpdated Thu, Jul 20 202312:19 PM EDT

Wall Street is holding onto its outlook on Tesla after it delivered a solid earnings report that nevertheless showed weaker margins after the company's aggressive price cuts. Tesla beat expectations on the top and bottom lines in its second-quarter report . The electric-vehicle maker reported revenue of $24.93 billion, beating the consensus estimate of $24.47 billion, according to Refinitiv. It posted adjusted earnings of 91 cents per share, also greater than the expected 82 cents. However, operating income fell 3% from the year-earlier period to $2.40 billion. That's also down from $2.66 billion in the first quarter. The stock was also under pressure after CEO Elon Musk and company leaders gave vague responses to questions on the timing for deliveries on the Cybertruck. Tesla shares were last down about 3% in Thursday premarket trading. TSLA 1D mountain Tesla shares 1-day Still, Wall Street analysts took the report in stride, with several big banks maintaining a neutral outlook on the stock after its significant rally this year. Tesla is 136% higher in 2023. Goldman Sachs' Mark Delaney said Tesla's second-quarter report beat some of the firm's estimates but was wary of the effect lower prices would have on margins. "We believe this was a solid 2Q report with Tesla taking market share and slightly exceeding our automotive non-GAAP margin estimate (and beating in Energy/Services)," Delaney said Wednesday. "However, we believe there could continue to be margin headwinds in the intermediate term if Tesla lowers prices to support higher volumes." "We remain Neutral rated on the stock, and we believe that our positive long-term view on the company is generally reflected in the stock post the large move YTD," Delaney added. Delaney's 12-month price target of $275 implies a 5% fall from Wednesday's closing price. Similarly, Bank of America's John Murphy reiterated a neutral rating on the stock, saying the earnings beat was offset by some weaker-than-expected performance below the hood. He also cited weaker margins because of lower prices as a concern. "[Overall] operating earnings performance was lighter than we projected due to lower gross margin (18.2% vs. our 18.7%) and higher R & D and SG & A spending, contributing to lower operating income of $2.40bn vs. BofA at $2.69bn," Murphy wrote Thursday. "Ultimately, the weaker gross margin highlighted the impact of TSLA's aggressive price cutting and, at 9.6%, its operating margin is now approaching the level of incumbent original equipment manufacturers (OEMs)," he added. Murphy's $300 price objective represents about 3% upside for the stock. Morgan Stanley's Adam Jonas also reiterated an equal-weight rating on Tesla, citing the firm's "slightly weaker than expected 2Q OP margin and FCF as the quarter faced headwinds from lower price/mix, FX and other costs." Jonas' $250 price target represents about 14% downside for Tesla. Jonas, a longtime Tesla bull, downgraded the stock in June. — CNBC's Michael Bloom and Lora Kolodny contributed to this report.