Tesla reports a big hit to margin in Q1: ‘stock is egregiously overvalued’

on Apr 19, 2023
  • Tesla Inc reports weaker-than-expected revenue for its fiscal Q1.
  • Roth Capital senior analyst Craig Irwin shares his view on "TSLA".
  • Tesla shares are currently up about 65% versus the start of 2023.

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Shares of Tesla Inc (NASDAQ: TSLA) are trading down in extended hours after the electric vehicles company said its gross profit margin took a big hit in its fiscal first quarter.

Analyst reacts to Tesla Q1 results

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Excluding regulatory credits, its automotive gross profit margin stood at 16% in the recent quarter versus 24% a year ago. On CNBC’s “Closing Bell: Overtime”, Roth Capital senior analyst Craig Irwin said:

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I don’t believe that demand is as strong as Elon Musk claims. Consumer of high-end vehicles is under pressure in this economy. A lot of great EV brands have launched into the market. It creates a difficult environment for Tesla.

The EV giant recorded about $6,800 of gross profit margin per vehicle – down significantly from $15,700 in the same quarter last year.

Tesla shares are still up 65% for the year.

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Is it worth investing in Tesla stock?

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Earlier this month, Tesla reported record deliveries for its Q1 (find out more) and reiterated its commitment to 40% growth this year. The analyst added:

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They are cutting price to try and get to that 40%. 18% growth is not a sexy number. It’s better than mediocre but not enough to justify this valuation. I see the stock as egregiously overvalued.

Irwin has a price target of $85 on Tesla shares which suggests more than a 50% downside from here.  

Notable figures on Tesla Q1 earnings report

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  • Earned $2.5 billion versus the year-ago $3.3 billion
  • Per-share earnings also declined from 95 cents to 73 cents
  • Adjusted EPS printed at 85 cents as per the press release
  • Revenue climbed 24% year-over-year to $23.3 billion
  • Consensus was 85 cents a share on $23.60 billion revenue

Also on Wednesday, Tesla Inc further lowered prices of its vehicles in the United States to boost demand. According to Craig Irwin:

There have been six rounds of price cuts. So, margins will continue to come in at the company. There are levers like Berlin and some other manufacturing initiatives that could help, but margins matter of Tesla.

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