By Michael Elkins
Truist Securities downgraded Tesla (NASDAQ:TSLA) to a Hold rating (From Buy) and cut their price target on the stock to $154.00 (From $245.00) after the company reported 1Q results and signaled its willingness to continue to cut prices.
Analysts wrote in a note, “We and investors alike have seen TSLA's price reductions, so Q1's results weren't surprising. What surprised us is TSLA's stated willingness to reduce price further, accepting still lower automotive margins, to broaden and deepen its ability to generate revenue from AI projects, most notably FSD. Ironically, TSLA's approach to product pricing makes our AI-oriented thesis look even "more correct" but diminishes the value of the core automotive business.”
TSLA posted modest ASP and GPM downside that was not surprising as the ASP erosion has been well-documented. The most surprising aspect of the quarter was CEO Elon Musk's suggestion that the electric automaker would be willing to accept significantly lower automotive GPM, and even willing to break-even in automotive in order to expand TSLA's installed base, into which the company can sell AI software like FSD.
In CQ1, TSLA delivered sales of $23,329 million, 1.9% below the consensus of $23,778M. The revenue miss relative to Truist’s model is closer to 1%. GPM of 19.3% was 160bps below consensus, but OPM was 30bps above consensus. The company reported an EPS of $0.85, $0.01 below consensus estimates for the quarter. Management reiterated its 1.8m unit production target for CY23 but noted that it will continue to flex pricing to stimulate demand, triggering negative revisions.
Musk reiterated that the company’s long-awaited Cybertruck is on schedule to start shipping this year. FSD Beta also continues to grow with more than 150 million miles driven.
Truist’s CY24 EPS estimate goes to $4.76 (from $5.74). The revisions are based primarily on lower automotive ASPs, lower long-term automotive margins, and to a lesser degree a reduced expectation of success in Dojo.
Shares of TSLA are up 0.85% in pre-market trading on Friday.