Tesla Stock Gains 7% on Strong EPS Beat but Analysts Warn That Valuation Might Be Full By Investing.com

Shares of Tesla (NASDAQ:) are up nearly 7% in premarket trading Thursday after the electric vehicle (EV) maker reported better-than-expected Q1 adjusted EPS and revenue.

How Did Tesla Perform in Q1?

The company Q1 adjusted EPS of $3.22, up from 93c in the year-ago period, to smash the consensus of $2.27 per share. The EV company reported revenue of $18.76 billion, up 81% YoY, and above the consensus of $17.92 billion.

Tesla’s free cash flow (FCF) in the quarter totaled $2.23 billion, compared to $293 million last year and a consensus projection of $671.8 million.

More importantly, the automotive gross margin stood at 32.9%, compared to 26.5% in the year-ago quarter, and higher than the analyst consensus of 28.4%. The company reported a gross margin of 29.1%, also above the expected 25.8%.

Forward-looking Commentary

Tesla said it plans to start expanding its manufacturing capacity immediately. The company still expects vehicle deliveries to grow by 50% annually, though it warned that supply chain challenges will likely remain throughout the rest of the year.

The carmaker says its Texas gigafactory will produce Model Y vehicles using both structural packs with 4680 cells and non-structural packs with 2170 cells later this year. Also, the industrialization of Tesla Cybertruck is seeing progress, the company said.

Musk’s Compensation

With the latest earnings report, Tesla CEO Elon Musk reached three important performance goals worth a total of $23 billion in compensation.

The carmaker’s strong revenue and EBITDA in the first quarter, along with robust reports from the previous three quarters, sees the company reach milestones that activate the vesting of 9th through 11th of 12 tranches of options awarded to Musk in his 2018 pay package.

Each tranche grants Musk the option to purchase 8.4 million Tesla shares at $70.01 apiece, marking a discount of as much as 90% from the stock’s closing price of $977.20 on Wednesday.

As a result, the three options that will vest following Tesla’s strong performance in the March quarter would provide Musk with compensation of roughly $23 billion.

The new compensation comes just a few days after Musk made a $43 billion bid to acquire Twitter (NYSE:), with some analysts predicting that the billionaire could borrow billions against Tesla shares.

Analysts Reflect on Tesla’s Q1 Performance

Goldman Sachs analyst Mark Delaney reiterated a Buy rating and a $1,200 price target on Tesla as the earnings report illustrated the benefits of Tesla’s model and price-cost leadership, he told clients in a note.

“While we expect input costs to rise this year (and in addition we estimate that the Giga Shanghai shutdown could represent a 50-100bps headwind to non-GAAP auto gross margin in 2Q), we think Tesla can largely offset this driven not only by higher pricing flowing through backlog but also due to improvements including with casting, internally developed 4680 cells, and ramping up the Austin and Berlin factories,” Delaney said.

Bank of America analyst John Murphy maintained his Neutral rating and a $1,300.00 per share price target after a “solid” performance.

“We have trepidation that TSLA stock may already be priced for perfection (or at least priced for hyperbolic growth), such that near-term earnings beats may be insufficient to get bulls incrementally positive on the stock. With this in mind, we reiterate our Neutral rating,” Murphy wrote to clients.

Finally, Citi analyst Itay Michaeli raised the price target on Tesla to $375.00 per share from $313.00 following an “impressive Q1.” The analyst is constructive on Tesla’s market-leading EV position but more skeptical of the company’s AV/FSD “architecture approach.”

“We think the current valuation remains challenging considering that the handful of other companies that previously achieved Tesla’s current market cap did so generating ~$100bln of gross profit (on avg.) vs. Tesla’s having just annualized ~$22bln in Q1 and as compared with our 2023E of ~$41bln. And while there’s little doubt that EV supply/demand broadly remains tight with EVs likely having also expanded the auto market, we need to be mindful that Tesla is adding sizable Model Y capacity in what are now price-points (>$60k U.S.) where the market-size is inherently smaller and where EV supply/demand might not prove as tight with other new entries ramping,” Michaeli said in a memo to clients.

Tesla stock price closed at $977.20 yesterday.

By Senad Karaahmetovic