On Wednesday, Piper Sandler kept a bullish stance on shares of Tesla Inc (NASDAQ:TSLA), affirming an Overweight rating with a steady price target of $300.00. The firm's analysis followed Tesla's earlier-than-anticipated release of its 10Q report, which allowed for a deeper examination of the company's automotive gross margin—a primary focus from their recent earnings call.
The report revealed that Tesla's warranty expenses rose to 4.1% of revenue in the second quarter of 2024, up from 3.1% in the first quarter. This increase accounted for a 100 basis point deviation from the gross margin expectations, potentially attributed to accruals for the Cybertruck or an uptick in warranty claims. The firm indicated that they are looking to gain further insight from Tesla's management regarding this shift.
Automotive gross margin is a complex metric to forecast due to the multitude of influencing factors. However, Piper Sandler noted that if Tesla could enhance product quality and reduce warranty expenses to between 2.5%-3% of revenue, it could significantly benefit the company's margins.
The assessment of warranty expenses is critical for understanding Tesla's financial health, as it can indicate the potential costs associated with product quality issues. A reduction in these costs could provide what the firm describes as a "free" margin tailwind for Tesla.
Despite the unexpected increase in warranty expenses, Piper Sandler's reiteration of the $300 price target suggests confidence in Tesla's underlying value and future prospects. The firm continues to monitor the situation, emphasizing the importance of warranty expense management in Tesla's overall profitability.
In other recent news, Tesla Inc. has undergone multiple revisions by analysts. JPMorgan maintained an Underweight rating on Tesla, citing a softer automotive adjusted gross margin and weaker free cash flow than expected.
The firm also adjusted its free cash flow forecast for Tesla from $2.5 billion to $2.0 billion. On the other hand, Piper Sandler raised Tesla's share price target to $300, focusing on the company's broader goals beyond immediate financial metrics, despite a decline in automotive gross margin.
New Street Research downgraded Tesla's stock from Buy to Neutral due to increased delivery costs and a 1.7 percentage point decline in gross margins. However, Tesla's energy segment showed an 84% quarter-over-quarter growth in revenue, reaching $3 billion. Canaccord Genuity maintained a Buy rating for Tesla, with a $254 target, focusing on the upcoming Robotaxi day as a noteworthy event.
Cantor Fitzgerald downgraded Tesla from Buy to Neutral but raised the price target to $245, citing potential growth from its Full Self-Driving software and the forthcoming RoboTaxi segment. Meanwhile, Roth/MKM maintained a Neutral rating for Tesla, highlighting challenges such as the need for vehicle discounting to drive sales volumes. These are recent developments for Tesla in the investment landscape.
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