"Tesla's Profit Margin Concerns and Analyst Recommendations for TSLA, CP, and Air Canada Securities"

2023-04-21 18:12:20

Tesla’s profit margins are a concern. (Photo: 123RF)

What to do with the securities of Tesla, Canadian Pacific and Air Canada? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.

Tesla (TSLA, US$180.59): worrying profit margins

Electric vehicle maker Tesla delivered mixed first-quarter financial results.

Daniel Ives, analyst at Wedbush, preferred to put his rose-colored glasses aside, and does not hesitate to speak of the elephant in the room: profit margins.

“Margins hit 19.3% in the quarter, while markets were expecting a performance of 21.1%,” he said, adding that the figure is down sharply from the 29.1% margin disclosed at the corresponding period one year ago.

Daniel Ives attributes the shrinking margins to multiple price cuts announced by Tesla’s senior management, led by colorful billionaire Elon Musk, as the company adjusts to a more competitive electric vehicle market in a tough macroeconomic environment.

“The issue of profit margins keeps Tesla shareholders up at night. Lower margins in the short term to stimulate long-term demand is a strategy that investors seem to agree with. However, a decline in margins below 20% is worrying,” he wrote.

The analyst, however, believes that the company’s goal of delivering 1.8 million vehicles this year remains achievable, noting in passing that Elon Musk reiterated that he wanted to reach this target during the conference call following the release of quarterly results.

“We remain very optimistic about Tesla. However, the decline in margins and price declines are to be watched closely in the coming quarters, because they are having a bad time on the stock market,” he said.

Tesla stock ended the April 20 session down US$17.60, or 9.75%, at US$162.99. Since the start of the year, the stock is still up 37.6%, starting January at US$118.47.

The automaker’s revenue hit US$23.3 billion in the first quarter, nearly in line with analysts’ consensus forecast of US$23.6 billion.

The company delivered 422,875 vehicles in the first three months of the year, while expectations were for 421,500. Tesla generated positive cash flow of US$2.51 billion, well below the forecast of US$5.85B analyst consensus.

Daniel Ives retains his “outperform” recommendation on Tesla stock, but lowers its one-year target price from US$225 to US$215. He also anticipates the first delivery of the Cybertruck in the third quarter of this year.

Denis Lalonde