Tesla: A Leading EV Player

by Warren Seah


Tesla (ticker: TSLA), a leader in the electric vehicle (EV) market, has been making significant strides in terms of pricing, production, and technology. However, despite its recent success, some analysts are becoming more cautious about the stock’s attractiveness. UBS analyst Patrick Hummel, for instance, downgraded Tesla from Buy to Hold, although he did raise his price target to $270 from $220.

Stock Performance and Downgrades

In June, Tesla’s stock surpassed Hummel’s previous price target, primarily due to factors such as partnerships with other automakers to expand the Tesla supercharging network and growing interest in artificial intelligence. However, these positive developments have also prompted other analysts to reevaluate their stance on the stock. In fact, Hummel’s downgrade marks the fifth such action taken by analysts since mid-June.

Profit-Taking and Future Outlook

Despite being up 111% year-to-date, Tesla’s stock has only seen a modest 10% increase since Hummel’s June 2022 upgrade. Analysts like Hummel believe it is prudent to take some profits off the table considering the stock’s recent surge. Nevertheless, he still holds a positive view of the company itself, recognizing Tesla as a frontrunner in the global pursuit of affordable electric and autonomous mobility. However, from a short-term perspective, Hummel believes the risk/reward balance for Tesla’s stock is relatively even.

In conclusion, while Tesla continues to lead the EV revolution and demonstrate strong operational capabilities, analysts are exercising caution due to the recent surge in stock price. The future of Tesla remains promising, but investors need to carefully assess the risk/reward dynamics before making investment decisions.

Tesla’s Q2 Report Shows Positive Signs

Tesla released its second-quarter earnings report, addressing concerns about margins and validating the company’s price cuts. While the aggressive price reductions in January 2023 initially impacted profitability, there are optimistic signs for Tesla.

In Q1, Tesla’s car business witnessed a decline in gross profit margins (excluding regulatory credits) from 24.3% in Q4 2022 to 18.8%. Although margins dipped slightly in Q2, the impact was minimal. Furthermore, the price cuts resulted in a significant boost in vehicle volume. In Q1, Tesla delivered approximately 423,000 vehicles, followed by another 466,000 in Q2 – setting new quarterly records for the company.

To further improve margins, Tesla’s focus should be on advancing its self-driving technology. Currently, the company charges $15,000 for its Full Self Driving (FSD) autonomous driving software. However, widespread adoption of this software, which relies on cars being able to drive autonomously, is still several years away according to analysts.

Since the beginning of 2023, the percentage of analysts providing a “Buy” rating on Tesla stock has dropped from approximately 64% to about 40%. This compares to an average “Buy” rating ratio of around 55% for stocks in the S&P 500.

The average target price assigned by analysts for Tesla stock is now approximately $244 per share, down from around $255 per share at the start of the year.

Overall, while Tesla faces challenges in maximizing margins, its second-quarter report demonstrates some positive trends. Exciting developments in self-driving technology remain pivotal for the company’s future success.

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