Analysts brush aside Tesla margin concerns: You have to spend more to do more

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Investors continued to sell Tesla shares on Thursday after the earnings disappointment, but Wall Street analysts gave up on some of their biggest concerns, such as weak margins. Shares of Tesla TSLA, -2.14% fell 5% in pre-market trading, with Nasdaq-100 NQ00 futures, -0.33% pointing to losses for Wall Street later on. That’s on the heels of a sell-off on Wednesday that was fueled in part by the battle between retail investors and short sellers of stocks like video game retailer GameStop GME, + 134.84%. Tesla was joined in the red by Apple AAPL, -0.77%, whose results in a record quarter raised some concerns about whether the tech giant can keep up with growth.

Opinion: Apple justifies its huge valuation, while Tesla … not so much Tesla reported an adjusted fourth-quarter profit of 80 cents and a 46% gain in revenue, at $ 10.74 billion. But Wall Street analysts were looking for adjusted earnings of $ 1.02 and sales of $ 10.47 billion. They were also looking for direct guidance on 2021 sales, which they didn’t get. Weaker margins – net sales made on its cars after deducting costs – were another concern that emerged for investors, Citigroup analyst Itay Michaeli noted. Auto gross margin, excluding loans, was 20.7% compared to expectations of 24.2% and 20.9% a year ago, he said. “Although we do not believe that the quarter will change the LT [long-term] Bullish / bearish is much debated, smoother fourth quarter gross margins (in declining ASPs – average vehicle sales prices) will likely be viewed as a negative for the prevailing bullish case around supply and demand, ”Micheali said. . Among the Tesla bears, Citi rates Tesla as sell / high risk with a price target of $ 159. Aside from lower prices, margins were offset by a $ 267 million share-based compensation award linked to the Tesla CEO Elon Musk’s 2018 package along with price cuts and switch costs on the S and X Models and price cuts on the China Model 3, Ben noted. Kallo, Baird’s senior research analyst. But he urged a bit of calm on this front. “While disappointing, we believe these additional costs / price reductions are necessary to drive growth in the long-term and short-lived in nature. In China, in particular, we view price cuts as prudent steps to halt the growth of increasingly well-funded domestic start-ups, ”Kallo told clients in a note. Kallo raised his price target on Tesla to $ 736 from $ 728 a share and remained at a higher rating. Musk’s guidance was “strong, particularly in the long term, albeit more vague” in 2021 in particular, he said, but added that he sticks to his own volume expectations for 2021, raising them from 856,000 to 859,000. Dan Ives, a Wedbush analyst who rates Tesla neutral with a $ 950 price target, described the electric carmaker’s latest results as “strong” and argued that the automotive gross margin remains in a “healthy range.” despite investor concerns. . Software updates and strong growth in China are driving Tesla’s growth story, he added, in a note to customers. Citi’s Michaeli also highlighted comments from Tesla’s management, which made noises of “confidence” about the rate of improvements to total autonomous driving (FSD) technology this year. “We continue to believe that FSD / AV [autonomous vehicles] it will be a very important part of the Tesla story this year, “he said, but added that they would like to see” more evidence “of progress on that front. Tesla shares have gained an astonishing 662% in the last 12 months, while the S&P 500 SPX, -2.57% has gained 14%.