Tesla production cranks into high gear, shares follow

Key points

• Tesla reported a record number of cars produced and delivered for Q2.

• The news means the Q2 consensus figures are well below what the market should expect. 

• Analysts have begun raising their price targets and are supporting a rally in stock prices. 

• 5 stocks we like better than Tesla.

Tesla (NASDAQ:TSLA) was expected to increase production and set a record, but the Q2 results were shocking. The company produced 479,700 vehicles in the quarter and delivered 466,140 compared to the expected 445,000. That’s 4.7% more than expected, up 10% sequentially and 83% compared to last year.

If anyone had doubts about the efficacy of Elon Musk’s decision to lower prices, they should be put to rest. The company is expected to post earnings in mid-July and will most likely outpace the current consensus by a wide margin. 

Tesla will outperform consensus in Q2

Because of macroeconomic headwinds, the analysts have been reducing their revenue and earnings targets over the last few months. That has the bar set low at $24.47 billion in top-line revenue, which is good for a gain of only 45% compared to last year. That figure includes the string of price reductions but grossly underestimates top-line performance, given the uptick in deliveries. The question is how earnings will be impacted.

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The price reductions will impact the margin, but the increase in deliveries will provide leverage. Additionally, some price increases toward the end of the 1st half will help amplify the outlook for the 2nd half, if not the 2nd quarter results. The analysts expect earnings to rise YOY but fall compared to Q1, which is another underestimation of the company’s strength. 

The analysts’ activity in Tesla is mixed in 2023, but the trends are shifting and helping to lift the price action. The consensus rating of 36 analysts is a Hold which is down from a more solid Hold last year. The activity since January 1 includes numerous price target reductions and downgrades that have the stock on Marketbeat.com’s Most Downgraded Stocks list.

The caveat is that the most recent analyst actions, including the 1st 5 revisions following the delivery update, are very bullish. 

Those 5 revisions include 5 price target increases that put the market above the current consensus price. The consensus price is about 25% below the current market action but is moving higher than last month. The range of new targets includes a low price of $120, but that is an outlier. The other 4 have the stock trading between $240 and $293, which is closer to fair value with shares at $280. Assuming this trend continues, and it should give the news, the consensus target will continue to rise, and the sentiment may begin to firm. 

Tesla establishes dominance of EV infrastructure 

Tesla, already the dominant EV OEM, is also making significant strides toward dominating the EV infrastructure market. The company’s charging system is fast becoming an industry standard, meaning TSLA-branded charging stations will see increasing demand. The latest news is from SAE International, which sets standards for the automotive industry.

In a release, SAE International said it would support Tesla’s charging structure and make it a standard feature for industry products. Any manufacturer or supplier can use or deploy the standard on cars or charging systems nationwide. Tesla’s network of NCAS standard charging stations is already more than 50% larger than the other existing standard. 

Shares of TSLA shot up more than 7% on the news. The move breaks the market out of consolidation and indicates continuing the trend. The next target is nearly $315, which may be reached by the Q2 reporting date. If the Q2 results are as strong as expected, the market could move through $315 on its way back toward the $360 level.