Can the Tesla share price overcome headwinds in Q1 earnings?

Tesla’s share price has been on a rollercoaster. Hit by CEO Elon Musk’s offer to buy Twitter, rising inflation and increased material costs, it’s been sustained by a good Q4, increased production at its gigafactories and a potential move into robotaxis. 

Tesla [TSLA] is expected to deliver a promising set of earnings in the January–March period when it announced results on 20 April.

According to consensus estimates from 25 analysts polled by Yahoo Finance, Tesla is forecast to record revenue of $17.8bn for the three months ending 31 March, up 71% year-over-year. Earnings per share are expected to come in at $2.26, a 143% increase from the year-ago quarter.

Star stock picker Cathie Wood’s ARK upgraded its five-year forecast and price target for the electric vehicle maker by 50% to $4,600 a share. The slump in its share price therefore seems counterintuitive and is hardly linked to the company’s performance.

The shares fell after CEO Elon Musk (pictured above) made headlines last week when he offered to buy Twitter [TWTR] for $43bn in an all-cash bid on 4 April. The stock has fallen 12% since then. It ended Monday at $1,004.29.

Production capacity set to double

While Covid-19 lockdowns and supply chain constraints impacted production at its gigafactory in Shanghai, Tesla still managed to deliver a record number of vehicles in the March quarter. According to a press release on Saturday 2 April, the company delivered 310,048 vehicles, exceeding Wall Street expectations of 309,000.

The Tesla share price lifted over that weekend on the news of the record-breaking numbers to close 5.6% higher on 4 April.

Although the company has struggled to keep up with demand, notably having to ship vehicles from China to customers in Europe, two new factories came online in the first three months of the year.

With its new Berlin gigafactory officially opened on 22 March and production commencing at its $1.1bn Austin facility in April, Tesla’s production capacity has now doubled to around two million units per year. The company also mentioned plans to expand its Shanghai factory by hiring more workers and operating for longer working days, with the goal of increasing the facility’s capacity to one million vehicles.

Q4 results beat expectations

While ongoing supply chain issues caused headwinds for Tesla last year, revenue and earnings for the final three months of 2021 surpassed analyst estimates.

The company reported Q4 revenue of $17.7bn, exceeding the $16.6bn forecast by Refinitiv analysts and up 65% from the year-ago quarter. It posted earnings per share of $2.52, versus an expected $2.36.

Despite supply chain disruptions meaning that Tesla’s factories have been operating under capacity for several quarters, delivery numbers reached 308,600 — a considerable increase from 180,570 recorded in the year-ago quarter. Its sales in China were particularly strong, with 70,847 China-made vehicles sold in December alone, marking the highest monthly total since its Shanghai gigafactory first came online in 2019.

However, these promising results failed to lift the Tesla share price, which had been trending lower since the start of the year. Tesla stocks tumbled 11.6% the day after the earnings announcement on 26 January to close at $829.10.

What’s weighing on Tesla stocks?

Along with concerns stemming from Musk’s potential Twitter takeover, the Tesla share price has struggled amid rising inflation and raw material prices, which have hurt growth stocks since the start of the year.

At the close on 18 April, Tesla shares had fallen 6.8% since the start of 2022. However, the picture so far this year is a volatile one: the stock climbed 24% over the course of March, lifted by the successful opening of its Berlin factory and the news that Q1 delivery numbers were looking promising.

The company was also able to shield itself from some of the effects of inflation by hiking its prices in mid-March. While EV rival Rivian [RIVN] was notably met with a backlash when it announced plans to raise its prices by 20%, Tesla’s decision to increase the cost of its vehicles did not hamper investor confidence, with the stock up 3.6% on the day of the announcement.

Caution amid optimism

While the Tesla share price took a hit last week, analysts are still broadly positive on the company’s outlook ahead of Wednesday’s earnings call. According to 35 analysts polled by MarketScreener, the stock has a consensus ‘outperform’ rating and an average price target of $970.08.

However, the recent news has led some analysts to adjust their forecast. On 18 April Piper Sandler analyst Alexander Potter lowered Tesla’s price target from $1,350 to $1,260. Potter cited the impact of continued lockdowns in China as the reason for this decision, adding that “delays, product defects/recalls, slow EV adoption, policy changes, supply disruption, and volatile CEO” are all potential risks.

Yet, the same day, ARK Invest’s Cathie Wood upgraded her price target for the company. Ark now believes the stock will hit the $3,000 mark by 2025, nearly a year earlier than it had earlier anticipated it. The decision appears to have been driven by Musk’s recent comment on the company’s plans to develop a robotaxi. “Tesla’s prospective robotaxi business line is a key driver, contributing 60% of expected value and more than half of expected Ebitda in 2026,” said a post on ARK’s website by analyst Tasha Keeney.

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