Tesla slides after margin miss while the EV sector braces for potential pricing war
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Tesla (NASDAQ:TSLA) dropped sharply on Thursday after investors digested the Q1 earnings report that highlighted the impact on margins from higher expenses during the quarter at the same time some prices on models were being cut.
The mood on Wall Street following the report tipped toward the negative with bears like JPMorgan pointed to demand issues and melting free cash flow. Both Oppenheimer and Wells Fargo think the near-term pressure on EPS and margins will hold back Tesla shares.
Even bullish analysts like Wedbush Securities' Dan Ives showed some caution. "Margins are now a delicate issue that are keeping Tesla investors up at night," he noted. The firm kept an Overweight rating in place on Tesla but noted that the margin compression and price cut narrative must be carefully managed over the coming quarters as it has to be considered a clear overhang on the stock.
Morgan Stanley analyst Adam Jonas keyed in on the earnings call when Elon Musk made the statement that the company could technically sell a car at zero profit today in order to capture far larger lifetime value of the vehicleâs recurring revenue going forward. He thinks that overhang could create headaches up and down the electric vehicle sector.
"While we do not expect Tesla to cut prices to a breakeven OP margin level this year under our base case of economic scenarios, we believe the âspiritâ of what was said should be taken to heart and has implications for informing the medium-term view of Teslaâs pricing strategy as well as many adjacent industries (upstream and downstream) and the financial outlook for competitors who may be in a less advantageous position from a cost perspective."
Morgan Stanley cut its price target on Tesla (TSLA) to $200 from $220 in reaction.
Shares of Tesla (TSLA) fell 7.70% in premarket action to $166.68 vs. the 52-week trading range of $101.81 to $364.07. Other notable decliners in the sector included Nio (NIO) -2.16%, Rivian Automotive (RIVN) -2.75%, Fisker (FSR) -2.55%, Lucid Group (LCID) -3.78%, Ford (F) -3.11% and General Motors (GM) -2.58%.
What to watch: It is possible that Musk's earnings call comment on pricing could generate even more attention in the days ahead.
"We're the only ones making cars that technically, we could sell for zero profit for now and then yield actually tremendous economics in the future through autonomy, no one else can do that. I'm not sure how many people will appreciate the profundity of what I've just said, but it is extremely significant."
Read more highlights of the Tesla earnings call or see more details on the Q1 earnings report.
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