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Tesla shares dropped Thursday as investors zeroed in on the company's drop in margins in its Q1 earnings report.
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Margin concerns are 'keeping Tesla investors up at night,' said Wedbush analyst Dan Ives.
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Here's what Ives and other Tesla analysts are saying about Tesla's earnings report and the stock.
Tesla shares dropped Thursday as investors zeroed in on declining margins at the electric vehicle maker, prompting some analysts to reduce price targets and weigh on the company's strategy of cutting prices to uphold demand.
"With no rose-colored glasses: margins are now a delicate issue that are keeping Tesla investors up at night," Wedbush analyst Dan Ives said in a note to clients Thursday.
Tesla shares fell 7% to $167.69 during the session. The stock was still up about 36% so far in 2023.
Tesla's first-quarter results included automotive gross margin excluding federal credits of 19.3%, sliding from 29.1% in the first quarter of 2022. Its operating margin, a profitability gauge, fell to 11.4% from 19.2% in the same period a year ago.
Tesla CEO Elon Musk indicated the company's priority for now is growth over profit and said the company is navigating through an "uncertain'" macro environment.
"[It's] better to ship a large number of cars at a lower margin and subsequently harvest that margin in the future as we perfect autonomy," Musk told analysts during Tesla's conference call Wednesday.
Net income dropped by 24% to $2.51 billion from a year ago, partially pressured by Tesla's price cuts. The latest round of cuts was issued just before the first-quarter results were released late Wednesday. Price tags on some Model Y units were reduced by $3,000.
Here what some analysts are saying about Tesla's stock and its earnings report:
Wedbush analyst Dan Ives – cut price target to $215 from $225.
"The near-term margin pain for long-term demand/volume gain is a strategy the Street is mostly on board with, however dipping below the magical 20% threshold is a concern," said Ives. "While the bearish 16%-18% gross margin number did not happen and Auto GM was better than worst-case fears, Tesla is perfectly comfortable going below 20% with Street questions about the trajectory going forward," he said.
The company "walks a tight rope" between margin pressure versus driving stronger global demand for its Model Y and Model 3 vehicles. Its delivery guidance of 1.8 million is achievable, said Ives.
"In a nutshell, we remain very bullish on the Tesla story, HOWEVER this margin compression and price cut narrative must be carefully managed over the coming quarters as it now emerges as a clear overhang on the stock."