Tesla Margins Bigger Deal Than Shanghai

Tesla Inc. (TSLA) reports Q1 2022 results after Wednesday’s closing bell, with analysts looking for a profit of $2.27 per-share on $17.84 billion in revenue. If met, earnings-per-share (EPS) will mark a 244% profit increase compared to the same quarter last year. The stock fell 5.9% in January despite better-than-expected Q4 sales and earnings, but is now trading about 150 points higher. Accumulation has soared since March, lifting technical readings back to all-time highs.

Soaring Raw Material Prices

Analysts are squarely focused on the Shanghai shutdown and its impact to deliveries in the second quarter. However, raw material prices could pose a more destructive obstacle, with the average price for metals needed to produce EV batteries rising 74% in the first quarter. Credit Suisse analyst Dan Levy summarized this headwind in a recent outlook, warning that “Margins remain a key focus amid cost inflation. Any commentary on risk to margins could be a negative for the stock.”

On the flip side, Wedbush analyst Dan Ives pounded the tables ahead of the report, raising his price target to $1400 while noting challenges that could negate his bullishness. As he argues “All eyes are on the company’s brutal production issues in China, with Giga Shanghai having a three-week shutdown due to the zero Covid policy in the region. The main question is just how bad the China production issues are and what that means for deliveries in 2Q and the rest of the year.”

Wall Street and Technical Outlook

Wall Street consensus hasn’t budged since Tesla reported 310,000 first quarter deliveries earlier this month, lower than 325,000 expectations. The combined outlook stands at an ‘Overweight’ rating based upon 18 ‘Buy’, 4 ‘Overweight’, 10 ‘Hold’, and 3 ‘Underweight’ recommendations. In addition, six analysts now recommend that shareholders close positions. Price targets currently range from a low of just $67, which is obviously stale, to a Street-high $1,580.  The stock is set to open Wednesday’s session about $70 below the median $1,103 target.

Tesla broke out above the February 2020 peak at 194 in July of that year, entering a powerful uptrend that topped out at 901 in January 2021. An October breakout posted an all-time high at 1,243 in November, ahead of sideways action that’s tested new support for the last five months. Accumulation readings look excellent, favoring a bullish outcome, but conflicting cycles suggests more pattern building before substantially higher or lower prices.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.