The recent rally in Tesla (NASDAQ 🙂 shares is gaining momentum after better-than-expected higher expectations that the electric vehicle maker could be stronger to withstand the delay caused by the corona virus.
The company said on Thursday that it shipped 88,400 vehicles worldwide in the first quarter, down 21% from the last three months of 2019. But the total was still better than the average analyst estimate for approximately 78,100 .
Tesla has risen more than 15% over the past three sessions on this positive surprise and closed at $ 516.24 yesterday. The revival places Tesla in the camp of those growth stocks that deliver higher returns at a time when the economy is entering a recession.
Tesla is up 23% this year against a 17% drop in the benchmark index.
After the publication of 1Q sales data, Jefferies upgraded the shares to a buy, saying that profit and free cash flow should be supported by "better productivity".
Despite this optimism, other analysts advise investors to trade Tesla shares with caution, as the latest numbers do not reflect the extent of the damage from the coronavirus shock.
According to Cowen analyst Jeffrey Osborne, Tesla's production utilization in the quarter was quite low compared to the reported capacity levels, even taking into account shutdowns.
"Free cash flow in the first quarter is probably not as bad as we feared, but the second quarter set-up still looks rough and we still expect a U-shaped recovery in the second half of 2020, Osborne, who has a $ 285 stock target on the stock, said in a note.
Slumping Demand
Bulls rallied behind Tesla this year when founder and CEO Elon Musk successfully turned a corner after years of promising and underperformance. The company beat analyst estimates for 4Q and accelerated the introduction of the new Model Y crossover.
The completion of the Shanghai plant and the company's success in exceeding its ambitious goal of selling 360,000 vehicles for the year also gave a strong signal that Tesla could quickly become a meaningful player in the industry if it would continue to achieve its goals.
But that optimistic scenario is now seriously threatened by the impact of the deadly virus in China and worldwide, which disrupts supply lines and increases the risk of a recession. Car deliveries could drop more than 12% last year to 78.8 million, according to Bloomberg's IHS Markit forecast, down 10 million units from the researcher's expectations in January.
Although Tesla provided first quarter sales data, it did not update whether it can reach its target of 500,000 units for car sales this year. The company also did not say how many vehicles it had built during the quarter at its factory near Shanghai, which started production late last year.
Needham analyst Rajvindra Gill believes it would be better to remain cautious with Tesla as demand for cars has largely collapsed in North America and Europe. In a note last week, Gil said:
“In the long term, we continue to expect margin pressure from declining sales of Model S & X vehicles with higher margins, a lower mix within Model 3, and competitive pressure from other automakers when they launch their electric vehicles over the next few years. & # 39;
Bottom Line
Tesla certainly outperforms the market in this very challenging environment, supported by some real advancements in its production capacity and performance.
At the same time, it would be naïve to assume that the automaker can escape the damage caused by the COVID-19 pandemic. The company's earnings report for the first quarter of this month, which is tentatively scheduled for Wednesday, April 29 after its closing, should provide more clarity.
