Despite recent gains, Tesla’s shares remain well below their November peak and could come under further pressure this month, as Q1 profits are expected to be lower than in Q4. Ahead of the earnings call on Wednesday evening, we look at the latest developments affecting the Tesla share price and consider where the stock might be heading.
Plans for stock split drove rebound
Tesla stock was worth just over $1,000 a share as of Tuesday afternoon, having dropped by around a fifth from the record high of $1,243.49 that it hit during intraday trading on 4 November.
Investor sentiment was negatively affected late last year by chief executive Elon Musk’s decision, first broached via a Twitter poll in November, to sell around 10% of his Tesla stake to pay a tax bill. Other speedbumps on the route into and through Q1 included a legal dispute with JPMorgan and broader economic headwinds.
However, after sliding to $766.37 on 14 March the shares partially recovered, driven up by positive headlines including the opening of a new factory near Berlin on 22 March, a deal with car rental firm Hertz, and proposals for a stock split. These stories helped lift the shares to a three-month closing high of $1,145.45 on 4 April.
Production pause in Shanghai weighs on shares
Since early April the shares have slipped on concerns over output, with Tesla’s Shanghai factory shut down amid a citywide Covid-19 lockdown that has lasted almost three weeks. Musk – who recently made a multi-billion dollar bid to buy Twitter – said in January that growth in deliveries would exceed 50% this year, implying that Tesla will deliver more than 1.4 million vehicles in 2022. While the temporary closure of the Shanghai plant could jeopardise that target, new manufacturing capacity in Germany and Texas may help offset some of the damage.
Factory bosses will, however, have to contend with rising costs and ongoing chip shortages. Indeed, rising costs may have led to a drop in automotive margins during Q1, a potential area of interest for investors tuning into the upcoming earnings call.
Q1 profits may fall versus Q4 despite record deliveries
Tesla’s Q4 results, released in January, rounded off a record year for the electric car company, as annual profits soared to $5.5bn. Profits in the final quarter of 2021 equalled $2.54 a share on revenue of $17.72bn, both of which exceeded expectations. Automotive margins remained steady, coming in at 30.6%, as the company delivered 308,600 cars during Q4, of which 96.2% were Model 3 and Model Y. That brought total deliveries last year to 936,172 vehicles.
In Q1, the company delivered 310,048 vehicles, according to a company statement released on 2 April. Despite setting a fresh record for quarterly vehicle deliveries, the figure missed expectations as supply chain disruptions impeded production. Analysts estimate that cost increases in Q1 dragged earnings lower on a quarterly basis to $2.27 a share.
Although these predictions may be weighing on Tesla’s share price at present, the company’s long-term prospects remain bright according to the head of Ark Invest, Cathie Wood. She said on Monday that she expects Tesla’s stock to quadruple in value to $4,600 by 2026 if it can successfully create a network of self-driving taxis. Even by her more conservative estimates, she predicts that Tesla’s shares could rise to $2,900 in that timeframe. Whatever happens, there are likely to be plenty of bumps in the road between now and then.
Of more immediate concern for investors will be the reopening of the Shanghai factory, and whether Tesla remains on course to ramp up vehicle deliveries this year. Expect to hear updates on these points and more when the company announces its Q1 results at 10.30pm (UK time) on Wednesday 20 April.
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