Expectations are running high ahead of Tesla, Inc.'s (TSLA) earnings next week. The company is on strong footing for its fourth quarter 2021 earnings call on Jan. 26. It weathered the pandemic successfully by pivoting its production capabilities to overcome the automobile industry's chip shortage. The carmaker also opened two new factories and reported record deliveries for its electric vehicles. To top it all off, Tesla was the best-selling electric vehicle (EV) brand in Europe in 2021. Appropriately enough, analysts are predicting a great performance next week.
- Analysts have issued bullish assessments ahead of Tesla's earnings next week.
- They say the car company will exceed analyst expectations during its earnings call and have set high price targets for the company based on its future growth trajectory.
- However, a Bank of America research report states that Tesla will lose EV market share in the United States in the coming years.
A Bullish View
Tesla's stock price skyrocketed during the pandemic on the back of record deliveries and a policy push by the current administration to promote electric vehicles. While the stock's trajectory lost some steam last year, most analysts still expect it to push higher.
Credit Suisse analyst Dan Levy expects Tesla to beat Street expectations and recently raised his price target for the company's shares to $1,025 from $830. He has estimated earnings per share (EPS) of $2.81 for Tesla's fourth quarter, while the consensus estimate is for $2.25.
According to Levy, four factors—an increase in production capacity, gross profit margins, new batteries, and production announcements—will influence Tesla stock's future growth trajectory. The company is looking good on all four fronts currently, with new factories set to start production and novel battery chemistries in development. Its operating margin, already the highest among EV manufacturers, should further improve with volume production taking off.
Levy has rated Tesla's shares as a Hold despite his bullish view of the company's future because he believes that the stock is overvalued. The stock has a trailing 12-month price-to-earnings (P/E) ratio of 325.37 as of this writing.
While it is high in relation to the company's earnings, Levy's price target is a conservative one. Other analysts have pushed for significantly higher targets. For example, Piper Sandler’s Alexander Potter has a price target of $1,300 for Tesla stock.
Potter increased his estimates of Tesla's delivery numbers earlier this week. "We are boosting our estimates to reflect better-than-expected Q4 deliveries, as well as a higher estimate for deliveries in 2022 (we now expect 1.53M units, up from 1.38M previously). We're also nudging our 2022 margin expectations higher, because with strong volume and a rising contribution from software, we suspect Tesla will continue exceeding profitability expectations," he wrote in a note.
The Piper Sandler analyst stated that Tesla's new factories will help the company meet future demand for its vehicles. That demand is substantial enough to keep Tesla's sales engine humming. "Investors often ask us whether demand for competing EVs might sap Tesla's sales, but in our view, Tesla's market share is limited only by the company's own production capacity (and if 2022 goes as planned, capacity will soon get a big boost)," wrote Potter, adding that high interest rates will put a dampener on the firm's cost of capital. He has an Overweight rating on Tesla stock.
Jefferies analyst Philippe Houchois was also out with a note that attempted to change the conversation around Tesla. Instead of talking about the opportunity that the EV market presents for the company, he stated the conversation should be about the market share that Tesla will gain this year.
Next week's earnings will be "critical to validate (or not) the Q3 profit dynamics that could see Tesla 1) carve out meaningful share from legacy OEMs busy protecting their own share by ramping up BEVs and 2) claim a disproportionate share of the industry profit pool," he wrote. Houchois has an Overweight rating and a $1,400 price target for the stock.
It is important to remember that analyst assessments of Tesla's business assume an increased market share for the company as EVs take off. That may not happen. A recent report from a research team at Bank of America states that Tesla's market share of the EV market will decline from 69% in 2021 to 19% in 2024 even as sales of electric vehicles jump from 1 million in 2022 to 3 million in 2024. Meanwhile, Ford Motor Company (F) and General Motors Company (GM) will be the "biggest share gainers" in the EV market, the report states.