Tesla price target hiked to $265 at Jefferies, auto gross margins likely 'troughed' in Q2
The Tesla (TSLA) price hike train on Wall Street rolls on — with analyst after analyst trying to keep up.
The latest to hop on is Jefferies analyst Philippe Houchois, who bumped up the firm’s Tesla price target on Monday to $265 from $185, though the new target was 3% below Tesla’s opening price of $274.43. Houchois maintained Jefferies’ Hold rating on the stock, though the price hike followed a number of analysts who moved their targets higher in the wake of Tesla’s strong Q2 deliveries report last week.
Tesla reported Q2 global production of 479,700 units, with deliveries of 466,140. The delivery figure easily topped Wall Street consensus estimates of 448,599 units as well as the prior quarter’s total of 422,875. Both production and delivery totals for the second quarter were all-time records for Tesla.
“We join a consensus view that Q2 will be a trough in auto gross margin,” Houchois wrote, adding that the Jefferies team noted a “shift” in valuation drivers, notably based on Tesla's lead in AI-based self-driving software. The themes of gross margin bottoming and the realization that AI was fueling Tesla’s recent run-up were also noted by both Goldman Sachs and Morgan Stanley, though those banks as well as Jefferies feel that a re-rating of the stock on those themes is unwarranted at this time.
For the second quarter, Houchois forecast a 46% jump in revenue for Tesla year over year and a 6% move higher sequentially from Q1, but he expects automotive gross margin to slip to 18.6%, which would be a substantial 40 basis points below Q1 level.
As for those huge Tesla price cuts, Houchois says the jury is still out on whether the cuts proved the elasticity of demand for Tesla vehicles since Q2 deliveries only rose 10%. In economics, a product with elastic demand would see sales rise or fall in relation to moves in price.
Houchois believes product refreshes, like the much-rumored Model 3 “Highland” version, and Tesla’s small share overall of the mid-size car segment means there’s still room to grow despite price cuts.
Long term, Jefferies is still bullish on Tesla, despite the Hold rating, which is likely based on valuation. Of note, Houchois says Tesla has continued to widen the gap between legacy OEMs (original equipment manufacturers) from an operational performance standpoint and is likely the only OEM that isn’t playing a zero-sum game when it comes to shifting sales from traditional cars to EVs, which in most cases have “negative margin trade-off[s].”
Next week will be a big one for Tesla, with the automaker slated to release Q2 earnings results after the bell on July 19.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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