Proactive Investors - Tesla Inc (NASDAQ:TSLA) earnings next Tuesday, 23 April, are even more highly anticipated than normal as not only have recent delivery numbers disappointed and management face big strategic questions including reports of a pivot away from its lower-cost Model 2 project and more focus on a robotaxi.
Ahead of the results, analysts at Barclays (LON:BARC) cut their target price 20% to $180, seeing the earnings as a likely “negative catalyst” for the stock, with potential for new guidance to include higher investment spend.
They are not the only ones to see the company as an increasingly high-risk bet, after recent days saw large layoffs include many staff involved in the development of the Model 2 project, which industry reports suggest has now been completely defunded, despite denials by boss Elon Musk.
The post-earnings call with analysts and investors “may be one of the most widely anticipated calls ever, as Tesla is facing an investment thesis pivot”, Barclays analyst Dan Levy said in a note, acknowledging that many previous calls have been keenly awaited due to the company’s shifting strategies.
Up until a few weeks ago, the likely key focal point for the results would have been the reasons behind Tesla’s bumpy vehicle sales, following the sharper-than-expected fall in Q1 deliveries, with a risk that sales will flatline in 2024, not to mention pressure on profit margins.
All this implied “significantly negative” potential downgrades to EPS projections, said Levy, with the associated questions “more than enough to fill a call”.
And yet even this “deeply challenged” near-term fundamental outlook is taking a backseat to “a much larger issue”, the analyst said.
Tesla’s potential “investment thesis pivot”, and the likely core focus of the call, will be understand Musk and the board’s forward strategy the company is “seemingly pivoting away from its plans to produce a mass market vehicle (Model 2), and is instead focusing its efforts on autonomous driving”.
Musk, tweeted that a robotaxi launch is planned for August 8 and that “going balls to the wall for autonomy is a blindingly obvious move. Everything else is like variations n a horse carriage”.
Rather than Model 2 being dead, the Barclays analyst said he believes the more likely scenario it is being delayed.
“Yet for now we believe this strategy pivot is a clear net negative for the Tesla investment thesis, as it casts significant uncertainty on the path ahead for Tesla, making success of the stock dependent on bets with seemingly binary outcomes.
“Indeed, we are hard pressed to think of any other precedent of a company of Tesla’s size basing its path of success on such binary bet.”
The company’s plans for Model 2 are likely to get most attention on the call “but don’t expect satisfying answer”, Levy said.
For Q1, Barclays expects gross margin to miss consensus forecasts, with the possibility of the first negative free cash flow quarter for four years.
“While investors will enter the call with significant questions on Tesla’s strategy, we believe many of these questions may be unanswered.
“And with significant uncertainty remaining on the investment thesis, it could lead investors to capitulate.”