Tesla shares rallied after record auto sales in the second quarter. However, there is a reason to remain cautious.
New records for Tesla: sales (and shares) soar in the second quarter, thus extending its lead in establishing itself as one of the world’s most prominent electric car producers.
It should be noted that the company led by Elon Musk has delivered 466,140 cars worldwide, beating Wall Street estimates. BYD, the best-selling car brand in China made even more headlines, posting its most successful quarter ever, selling 700,244 all-electric and plug-in hybrid vehicles.
Tesla shares rose more than 6% in pre-market trading in the US, while BYD’s rose 5% in Hong Kong. Shares in electric vehicle battery suppliers Contemporary Amperex Technology Co. Ltd. and LG Energy Solution Ltd. also increased.
Tesla has vowed to push for higher volumes even at the expense of profitability. This puts pressure on automakers that haven’t kept up with EVs and shed overall market share.
Tesla shares rally: new successes for Elon Musk
Tesla shares jump 6%, after better-than-expected quarterly deliveries showed Elon Musk’s plan to boost volumes through lower prices was working.
The top US EV maker is expected to increase its market cap from $50 billion to $900 billion, based on pre-market moves.
At $277, the stock has already more than doubled in value this year and is well above analysts’ price targets, prompting caution from some brokers who see margins being hurt by aggressive discounting.
Price cuts helped the company deliver 466,140 vehicles in April-June, an 10% increase from the prior quarter and 83% year-on-year. The gap between the number of EVs produced and delivered also narrowed to 13,560 in the second quarter from 17,933 in the previous three months.
“Tesla’s price cuts are working great” said Gene Munster, managing partner at investment firm Deepwater Asset Management. “The average growth in deliveries compared to the previous seven quarters was 50%. This (quarter) marks a significant step forward in growth”.
In addition to slashing prices across its range, Tesla has offered perks like three months of free fast charging in the US and China insurance subsidies to fuel sales. Some analysts have predicted that price cuts will continue into the coming year.
Of note, Tesla is by far the largest electric vehicle maker in the United States, but it is facing stiff competition from new companies worldwide. Its newest vehicle, the Model Y, debuted in 2020.
The company, for example, has lagged far behind BYD in China, its most important market after the United States. Immediately following the close of the quarter, Tesla cut the prices of its premium models in China by more than 4.5%.
What to expect from Tesla stock? Because there is prudence
Some analysts have raised their stock price targets, saying Tesla’s annual delivery goal of about 1.8 million vehicles now seems prudent, as it has already delivered about half in the first six months of 2023.
The stock’s average price target is $210, which is approximately 20% below its last closing price. Tesla has a forward price-to-earnings ratio of about 62.9, well above Ford’s 8.82 and close to Amazon.com’s 62.66.
“The key question for investors is what the margins might be”, Bernstein analyst Toni Sacconaghi said “We continue to believe that Tesla will need to further lower prices this year and/or next year to meet its volume goals, putting incremental pressure on margins”.
The company reported a total gross margin of 19.3% in the first quarter. Wall Street expects the measure to drop to 18.6% when the company releases its second-quarter results on July 19.
Original article published on Money.it Italy 2023-07-03 15:14:30. Original title: Record di vendite per Tesla: azioni volano. Euforia o prudenza sul titolo?
