Tesla is still a pass, says Roth Capital

In-line quarterly results aren’t enough to move the needle on EV car company Tesla (Tesla Stock Quote, Charts, News, Analysts, Financials NASDAQ:TSLA), according to Roth Capital Partners analyst Craig Irwin, who delivered an update to clients on Thursday. Irwin said Tesla’s stock is still trading at an unjustified premium to its automaker peers.

Tesla reported first quarter fiscal 2023 financials on Wednesday, coming in with $23.3 billion in revenue, good for a 24 per cent year-over-year increase, and EBITDA of $4.3 billion, down 15 per cent year-over-year. Adjusted EPS was $0.85 per share compared to $1.07 per share a year earlier.

“As many carmakers are working through challenges with the unit economics of their EV programs, we aim to leverage our position as a cost leader. We are focused on rapidly growing production, investments in autonomy and vehicle software, and remaining on track with our growth investments,” Tesla said in its quarterly statement.

Tesla’s $23.3 billion topline compared to Irwin’s estimate at $22.8 billion and the consensus at $23.2 billion, while $0.85 in EPS compared to his forecast at $0.80 and the Street at $0.85 per share.

At the same time, the analyst noted that non-GAAP auto gross margins were 18.3 per cent compared to the 20.5 per cent forecasted in the consensus and compared to 26.7 per cent in the previous quarter and 30.0 per cent a year earlier. 

Irwin said the company’s price war is weighing on Tesla’s margins and profit outlook, noting that six price cuts have ben made since the beginning of 2023 in the North American market, with the base Model Y, Tesla’s top-selling vehicle in North America, now 29 per cent cheaper than at the beginning of the year. 

Irwin argued that the price cuts have stimulated demand but at the expense of gross margins and profitability.

“Management said on the 4Q22 call it did not see adjusted automotive gross margins dipping below 20 per cent in any 2023 quarter, yet the 1Q23 result of 18.3 per cent was (220 bps) below consensus. This played a large role driving net income down (23 per cent) Y/ Y, and headwinds are still building with continued price cuts, even this week,” Irwin wrote.

With the update, Irwin reiterated a “Neutral” rating on TSLA and 12-month target of $85.00, which at press time reflected a potential return of negative 53 per cent.

“We believe the Neutral rating appropriately balances how Tesla is positioned to continue executing, but the shares are valued at an oversize premium to all peers in the automotive sector, in our view,” he said.

“The current market valuation appears to rest on the specious assumption that the hundreds of EVs slated for launch by ’25 will all be flops. Tesla does not operate in a vacuum,” Irwin wrote.