© Reuters. FILE PHOTO: The logo of automaker Tesla is seen in a shop in London, Britain, May 14, 2021. REUTERS/Matthew Childs/File Photo/File Photo
by Aditya Soni
(Reuters) – Tesla shares jumped 6% on Monday after better-than-expected quarterly deliveries showed Chief Executive Elon Musk’s plan to boost volumes through discounts was working.
The leading US electric vehicle maker is set to increase its market capitalization by about $50 billion to $900 billion, based on early trading of its shares.
At $277, the stock has already doubled in value this year and is well above price targets set by analysts, leading some brokerages to warn that margins will suffer due to the aggressive discounting wave.
The price reductions helped the company deliver 466,140 vehicles in the April-June period, up 10% from the previous quarter and 83% higher than a year earlier. The gap between the number of cars produced and delivered by Tesla also narrowed to 13,560 in the second quarter from 17,933 in the previous three months.
“Tesla’s price cuts are working great,” said Gene Munster, managing partner at investment firm Deepwater Asset Management. “The average growth in deliveries over the previous seven quarters was 50%. This (quarter) represents a measurable growth step in growth.”
At least eight analysts have raised their price targets on the stock, with several saying Tesla’s annual deliveries target of about 1.8 million vehicles now looks conservative as it has already delivered about half of that in the first six months of 2023.
The stock has an average price target of $210, which is about 20% below its last closing price. Tesla has a forward price-to-earnings ratio of about 62.9, well above Ford’s 8.82 and close to Amazon.com’s (NASDAQ:) 62.66.
“The main question for investors is what are the potential margins,” Bernstein analyst Tony Sacconaghi said in a note.
“We continue to believe that Tesla will need to cut prices further this year and/or next year to meet volume targets, which is putting increasing pressure on margins.”
The company posted a gross profit margin of 19.3% in the first quarter. Wall Street expects the measure to drop to 18.6% when the company reports second-quarter results on July 19.
Despite margin pressures, a few analysts think the stock could rally as Tesla works to gain market share globally and its charging system moves closer to becoming the American standard.
“Our money is on Elon,” said George Giannarikas, an analyst at Canaccord Genety, who raised its price target on Tesla by $36, to $293.
(This story has been corrected to say “a few analysts” rather than “a few” in paragraph 11)