Tesla Stock Down 11% in April; Analyst Says Earnings Expectations ‘At A Crossroads’

Tesla (TSLA) announces first-quarter financials this week with analysts waiting to see how the global EV giant’s 2023 price-slashing strategy has impacted profit margins. TSLA shares edged higher early Monday.

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Elon Musk’s Tesla already reported record Q1 deliveries earlier in the month, thanks to vehicle price cuts and new U.S. tax credits. On Friday, Tesla cut prices in Europe, Singapore and Israel.

A week earlier, Tesla cut prices on all U.S. vehicles, the third price reduction this year. The Model S starts at $84,990 while the Model X now begins at $94,990. Meanwhile, Tesla cut U.S. Model 3 prices by $1,000 to an entry price of $41,990. The Model Y was cut $2,000 to $49,990.

Wedbush analyst Daniel Ives, a longtime Tesla bull, wrote Sunday the main focus of the Street heading into Wednesday’s earnings is the margin structure of the business following vehicle price cuts. Ives said the “EV arms race is heating up globally.” Ives maintained an “outperform” rating and a 225 Tesla stock price target.

“We continue to strongly believe that aggressive price cuts by Tesla was a smart ‘rip the Band-Aid off moment’ for Musk & Co. to defend its EV turf.”

Ives also suggested the move “put an iron fence around” its customer base, but said it raised the question of when the price cuts will end and what Tesla’s margins will look like when they stop.

Meanwhile, Morgan Stanley analyst Adam Jonas wrote Monday Tesla “should be able to eke out a decent 1Q result.”

“It feels to us that Tesla earnings expectations are at a crossroads,” Jonas wrote. “Will investors see the industrial logic (masterstroke?) of leading the industry in price cuts rather than following it?”

Barclays on Monday maintained an “Overweight” rating on TSLA. However, the firm lowered its Tesla stock price target to 230, down from 275, citing margin pressures.

Tesla Earnings

Estimates: Analysts predict Q1 earnings of 86 cents per share, a nearly 20% drop compared to last year. Wall Street forecasts revenue growing 26% to $23.73 billion.

Results: Check Wednesday evening.

Wall Street forecasts gross margins around 21% in the current quarter. A year ago, Tesla’s gross margins were about 29% while in the fourth-quarter of 2022 gross margins were 24.3% for the EV giant.

The average Tesla vehicle selling price in the first quarter was around $47,250, according to FactSet estimates. That’s down from $51,400 in the fourth quarter and $52,100 a year ago.

Tesla Stock

TSLA advanced 0.9% Monday during premarket trade. Tesla stock held its ground — dipping fractionally, to 185, in the past week after tumbling 10.8% in the prior week. TSLA is facing some resistance at the 21-day and 50-day lines.

On a weekly chart, Tesla stock has formed a cup-with-handle base with a 207.89 buy point, according to MarketSmith analysis. However, the daily chart shows a tighter handle entry, at 200.76. Both entries are below the 200-day moving average, which can be a warning sign.

Another possibility is if Tesla stock breaks above the 50-day line on earnings, offering an early entry with a little room to the 200-day.

What’s Up With The U.S. Tax Credits?

TSLA’s recent U.S. vehicle price cuts are ahead of the implementation of new battery and mineral component requirements to qualify for the full Inflation Reduction Act $7,500 tax credit for EVs.

The Biden administration announced on March 31 that vehicles eligible for the full $7,500 tax credit must have batteries with specific amounts of components from North America and critical minerals sourced in the U.S. or from certain countries.

Vehicles that meet one of the critical minerals or battery components requirements will be eligible for a $3,750 tax credit.

The battery criteria goes into effect April 18, when a list of models that qualify for the full $7,500 tax credit will be issued.

The Tesla Model 3 contains a battery from China. Tesla’s Model 3 page on its website has a banner informing EV shoppers the “$7,500 tax credit will be reduced to $3,750 for Model 3 Rear-Wheel Drive on April 18.”

Jonas wrote Monday some investors may wonder how much of the first-quarter volume is a “pull forward” as consumers take advantage of the current tax credit.

“Our working assumption is that Tesla will continue its price cut campaign to ensure their vehicles come in cheaper than their competitors who do qualify for the IRA benefits,” the Morgan Stanley analyst wrote.

Tesla stock sits third in IBD’s Auto Manufacturers industry group. TSLA has an 84 Composite Rating out of 99. Tesla stock has an 69 Relative Strength Rating. The EPS Rating is 99 out of 99.

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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