πππAll eyes will be on Elon Musk on April 22, as Tesla is scheduled to report its Q1 25 earnings report.
Can Tesla's Earnings repeat last April's earnings beat or fall below USD 200?
Last April, Tesla managed to surprise the market by beating analysts expectations. The rally was fueled by strong production numbers, improved margins and positive investor sentiment. However the current environment for Q1 25 shows mixed signals. While there are reasons for cautious optimism, significant production challenges and delivery figures (down 16% and 13% year over year respectively) have raised concerns among investors. These factors leave open 2 distinct scenarios for the upcoming earnings report.
Scenario 1 - Repeating the April Beat
Cost Management and Energy Growth - Tesla has been aggressively cutting costs and pushing its high energy segment. If Tesla can continue to reduce its cost per vehicle and drive revenue growth through innovations or increased demand on its energy business, there maybe enough offset for the underperformance in the vehicle numbers. In this optimistic scenario, strong execution on these areas could enable Tesla to not only match but perhaps outdo last April's EPS beat.
Margin Preservation - Sustaining or even expanding its vehicle gross margins despite lower production volume would send a positive signal to investors. Efficient management of supply chain challenges and production bottlenecks would bolster the case for an earnings beat.
Investor sentiment - With market confidence resilient - driven by Tesla's reputation for innovation, a favourable earnings report could renew bullish sentiment. This might help Tesla's stock to hold strong or even rally, keeping the share price above the USD 200 threshold.
Scenario 2 - Falling short and Facing Downside Pressure
Persistent Production and Delivery Challenges - Recent data indicate continued struggles with production and vehicle delivery targets. If these issues persist, Tesla's revenue and EPS could disappoint, especially against the higher expectations set by last April's performance.
Pressure on Margins - Despite cost cutting measures, increasing competition and ongoing pricing pressures in the EV segment may weigh on profit margins. A significant miss on the margin front could lead to investors to reassess Tesla's short term prospects.
Market Reaction and Technical Levels - Should the earnings report fall below consensus expectations, the resulting negative sentiment might drive Tesla's shares lower. Given that analysts often use key price thresholds as psychological barriers, a disappointing performance or weak forward guidance could provoke a sell off, potentially dragging the stock below the USD 200 mark.
While last April's excellent performance shows that Tesla has the potential to exceed expectations under favourable conditions, the current headwinds both macro and micro, make outlook less clear cut.
Wall Street Analysts are currently mixed on Tesla, with ratings reflecting both significant risks and promising opportunities.
JPMorgan Analysts have taken a notably Bearish view of Tesla's share performance. They have forecasted a potential downside of around 50% which translates to Target price of USD 120. This outlook reflects significant concerns regarding Tesla's recent delivery performance, margin pressures and Tesla brand issues exacerbated by Elon Musk's role in DOGE.
On the other hand, Tesla Bulls such as Cathie Wood remains extremely bullish on Tesla's long term prospects. She has set a long term price target of USD 2,600 per share. Her bullish bet is based on the fact that Tesla is not just an Automaker but a technology company poised to revolutionise transportation. She envisions a future where Tesla's Robotaxi business becomes a major growth driver.
I am cautiously optimistic about Tesla. In the short term, Tesla faces challenges but in the long term, I believe Tesla's growth story is still very much alive. If Tesla drops below the USD 200 mark, it is time for Bargain hunting.
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