Investor's Corner

Tesla (TSLA) gets nine-day streak, bullish outlook heading into Q3 earnings call

A snapshot from a drone flyover of the Tesla Fremont factory on June 29, 2018. [Credit: DarkSoldier 360/YouTube]

Tesla stock (NASDAQ:TSLA) is approaching its impending third-quarter earnings call with a nine-day consecutive streak and a positive outlook from one of its most ardent supporters on Wall Street.  

Since revealing that it has delivered 97,000 vehicles in the third quarter at the beginning of October, Tesla stock has seen itself dip and subsequently recover. After the Q3 delivery report’s release, shares dropped by about 4.2% over Tesla’s alleged inability to deliver on Elon Musk’s optimistic estimate, which indicated that the company had a shot at delivering 100,000 vehicles in Q3. 

TSLA stock was thus punished for not meeting a goal that it never formally set. This was especially true considering that the average estimate among 21 financial firms covering Tesla expected the company to deliver about 94,000 vehicles in the third quarter. Eventually, Tesla stock recovered and as of this Wednesday, shares closed at $259.75, gaining nearly 11.5% over its streak. By the end of Thursday, Tesla’s momentum had extended to nine consecutive days. 

Amidst this recovery, Tesla shares have received a vote of confidence from one of its most ardent supporters on Wall Street. In a recently published note, Baird analyst Ben Kallo reiterated his “Outperform” rating and $355 price target on Tesla shares, stating that he would be a buyer ahead of earnings on the expectation of sequential gross margin improvement. 

“We think results could surprise to the upside (there is an outside shot the company achieves GAAP profitability, in our view), though there are several variables, including leasing and Service/Energy margins, which could hinder near-term profitability. 2019 volume guidance will likely also be a focus as the market looks to bridge Q4; we think tightening guidance lower would remove an overhang on the stock,” Kallo noted

In a way, Kallo’s expectation of Tesla’s GAAP profitability might be quite optimistic, especially in light of Wall Street looking at a year-over-year dip in quarterly revenue for the first time in over a decade. This, as noted in a report from MarketWatch, is likely due to third quarter vehicle deliveries being skewed heavily towards the Model 3, the company’s most affordable vehicle. In contrast, Q3 2018 ended with 84,000 vehicle deliveries, of which 56,000 were Model 3. 

It is not only Kallo that holds an optimistic stance on Tesla stock. Fellow analyst Colin Rusch from Oppenheimer recently noted that he continues to believe Tesla’s Q3 delivery number was strong relative to expectations. Rusch positions the company to beat gross margin estimates should it deliver on some of the manufacturing efficiencies it has been working on. The Oppenheimer analyst further explained that Tesla’s Q3 gross margins may benefit from the higher mix of Model 3 sales in the European region, particularly as emission credit monetization could boost earnings in the quarter. 

Rusch currently holds an “Outperform” rating and a $356 price target on Tesla stock. 

As of writing, Tesla stock is trading -0.38% at $260.97 per share. 

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.

Tesla (TSLA) gets nine-day streak, bullish outlook heading into Q3 earnings call
To Top