Is Tesla Stock a Buy Following Double-Digit Decline on Disappointing Earnings?
Shares of TSLA stock plummeted as much as 10% today in reaction to Wednesday's poor earnings report.
Thanks to Tesla’s (NASDAQ: TSLA) many price cuts on electric vehicles (EVs) in 2023, its profit margins dropped below the 20% marker that analysts had been projecting. Earlier this week, Tesla announced the sixth price cut of the year on the company’s EV lineup. While these price cuts may have helped Tesla boost its sales totals, they hurt overall revenue and profit margins.
Tesla released its Q1 2023 earnings report on Wednesday evening, posting revenue of $23.3 billion and earnings per share (EPS) of $0.85. Tesla’s revenue (slight miss) and profit figures were in line with analyst expectations, which had the EV maker’s revenue and earnings per share coming in at $23.617 billion – $24.048 billion and $0.85 – $0.94 per share, respectively. Despite the slight miss, Tesla’s Q1 revenue rose 24% year over year. The company’s EPS, however, declined 21% year over year.
The big disappointment for investors was Tesla’s reported profit margin of 19.3%, which came in below the 20% figure projected by analysts.
Tesla commented on the price reductions, stating:
“Although we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate. We expect ongoing cost reduction of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and remain focused on operating leverage as we scale.”
Tesla CEO Elon Musk backed the company’s decision to slash prices on its EVs, stating:
“We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin.”
Despite the current volatility in TSLA stock, many analysts still forecast a bright future for the electric vehicle maker. With the median 12-month price target currently at $200 per share, analysts are projecting an implied potential upside of 23% from current levels following today’s 10% decline.
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Disclaimer: Wealthy VC does not hold a position in any of the stocks, ETFs or cryptocurrencies mentioned in this article.
