Tesla shares powered firmly higher in early Wednesday trading, and look set for their strongest post-earnings reaction in four years, after the electric-vehicle producer eased investor concerns about an abrupt strategy shift away from its core carmaking business.
Tesla (TSLA) posted a weak set of first-quarter earnings after the close of trading on April 23, with net income falling nearly 55% from a year earlier to $1.13 billion and revenue sliding 8.7% to $21.3 billion, but vowed to introduce a new lineup of cars within the next year.
That signal came amid broader concern that Tesla would move away from its traditional carmaking roots in favor of a business model focused on autonomous driving, robotics and AI-related technologies. That triggered an after-hours jump in Tesla stock that was cemented by a shareholder-friendly conference call from Chief Executive Elon Musk.
"I think we'll have higher sales this year than last year," Musk told investors, even as the group reiterated its forecast for "notably lower" vehicle deliveries for the current year.
"We've updated our future vehicle lineup to accelerate the launch of new models ahead, previously mentioned start of production in the second half of 2025. So, we expect it to be more like the early 2025, if not late this year," Musk said.
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"These new vehicles, including more affordable models, will use aspects of the next-generation platform as well as aspects of our current platforms, and we'll be able to produce on the same manufacturing lines as our current vehicle lineup," he added.
But Musk also told investors that it was "fundamentally wrong" to value Tesla as an automotive company, suggesting his longer-term ambitions run far beyond a new lineup of lower-priced EVs.
"We should be thought of as an AI or robotics company," Musk said. "I mean, if somebody doesn't believe Tesla is going to solve autonomy, I think they should not be an investor in the company."
That transition, however, is compelling analysts on Wall Street to rethink their Tesla valuations, as much of the AI and robotics-powered future he laid out on the conference call is based on technologies and assembly structures that haven't been established.
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UBS analyst Joseph Spak lowered the price target on Tesla by $13 to $147 a share, arguing that while Musk "took the ultimate bear case off the table (with a) new, lower-cost product," the group's longer-term growth story has changed.
"Increasingly, Tesla is a play on autonomy, and while progress is being made, we are cautious on near-term viability," Spak wrote. "In our view, this conversation will get somewhat tabled until the robotaxi day" in early August.
New growth narrative
Alliance Bernstein analyst Toni Sacconaghi, who carries an underperform rating and $120 price target on Tesla stock, argues that the "widespread deployment of [Tesla's Full Self-Driving] is 5 to 10 years away.” He says it's by no means a "slam dunk' that the company can grow sales this year given the weak EV-demand environment.
B of A Securities analyst John Murphy notes, however, that Musk not only addressed "key concerns" on the conference call but also managed to "revitalize the growth narrative" with both his bullish delivery forecast and his wider AI and robotics ambitions.
"Admittedly, the combination of all of these may not structurally change the long-term path of the company, but in the near-term the tide in news flow appears to suggest the risk to the stock is skewing more positively,” said Murphy, who lifted his rating on Tesla to buy from neutral and affirmed a $220 price target.
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Wedbush analyst Dan Ives also praised Musk's performance on the call, noting that investors needed a "roadmap for growth" after what he called "disaster results" for the first quarter.
"Last night in a much needed conference call Elon Musk finally stepped up as the adult in the room and laid the foundation for Tesla's growth strategy with most importantly a lower-cost vehicle now slated for 2025 production and delivery," Ives said.
But Ives, a longtime Tesla bull who carries an outperform rating on the stock, also lowered his price target by $25 to $275 a share, arguing that Musk needs "flawless" execution in building China demand and delivering on a lower-cost EV over the coming year.
"Clearly Tesla is going through a challenging period of delivery growth and this story will not turnaround overnight, so patience is required," Ives said.
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Challenges ahead for Musk
"However, it now feels that Musk is taking tighter control of the reins of Tesla with a lower-cost vehicle on the roadmap, cost cuts to manage this soft period of growth, [Full-Self-Driving] advancements, and ample financial power/treasure chest to navigate this near-term demand storm," he added.
Morgan Stanley analyst Adam Jonas, another Wall Street veteran who has long supported Musk's thesis of growth beyond carmaking, reiterated his outperform rating and $310 price target. He said the first-quarter results were "not as bad as many feared" and provided "something for everyone."
"Tesla will be challenged to match last year's unit volume number given the sharp decline in first-quarter deliveries," Jonas wrote. "Showing a path to a bottoming in deliveries is crucial to forming a bottom to negative earnings revisions over the next 18 months."
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However, he also said that Musk's revelation that Tesla has spent around $1 billion in AI hardware, much of it from Nvidia (NVDA) , "may alleviate some investor concerns that Tesla would emphasize its AI efforts in non-Tesla entities controlled by its chairman and CEO."
Citigroup analyst Itay Michaeli also described Tesla's earnings as "better than feared." He nudged his price target $2 higher to $182 a share, citing the new lower-priced lineup and Musk's upbeat sales forecast.
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“The quarter won’t settle recent debates, and consensus estimates still seem vulnerable,” Michaeli said. But the stock's year-to-date slump and the bearish narrative heading into the release mean the early trading reaction "makes sense.”
Tesla shares were marked 15.9% higher in early Wednesday trading to change hand sat $167.71, a move would still leave the stock nursing a year-to-date decline of around 33%.
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