Proactive Investors - Wedbush analyst Daniel Ives lowered his price target for Tesla Inc (NASDAQ:TSLA) by $7 after it reported declining earnings and margins, but he remains bullish on the Tesla story.
The Tesla bull said the electric-vehicle maker’s softening operating margins are now “a delicate issue that are keeping Tesla investors up at night.”
“Tesla delivered mixed results with solid demand metrics but the elephant in the room is softer margins that will weigh on shares,” Ives wrote in a note to clients.
“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.”
Tesla reported that the lower average prices of its cars contributed to a 24% decline in first-quarter profit, while its operating margin fell to 11.4% from 19.2% a year ago.
Ives noted that 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.
“We believe Tesla now walks a tight rope between margin pressure vs. driving stronger Model Y/3 demand globally,” said Ives.
Wedbush believes that the 1.8 million delivery guidance remains hittable/beatable.
“Musk reiterated the annual goal on the conference call which is a clear positive in a shaky macro,” said Ives.
“We maintain our Outperform rating, while lowering our price target from $225 to $215 reflecting further near-term margin softness the next few quarters.”
Significantly, Tesla’s first quarter revenue of $23.33 billion came in line with Wall Street’s $23.60 billion estimate as deliveries of 423,000 topped consensus estimates.
Tesla stock fell over 9% to $164.29 on the Nasdaq in afternoon trading.