On Tuesday, Piper Sandler confirmed its Overweight rating and a $315.00 price target for Tesla (NASDAQ:TSLA) shares. The firm's analyst highlighted the significance of Tesla's Full Self-Driving (FSD) software revenue in the company's overall financial performance. Despite the lack of direct disclosure of FSD revenue by Tesla, the analyst emphasized its role in bolstering the company's gross margin.
The report released by Piper Sandler includes a table estimating the revenue generated from FSD software in Q3. The analyst noted that FSD revenue is highly beneficial to profit margins and is becoming a more critical factor in Tesla's overall gross margin. However, due to Tesla not reporting FSD revenue separately, investors have faced challenges in assessing the exact impact on Q3 earnings.
The analysis suggests that some of Tesla's FSD revenue in the quarter was one-time, such as deferred revenue recognition. The analyst advised against excluding this impact when evaluating the company's "real" Q3 gross margin. The expectation is that Cybertruck, with its potentially high FSD take-rates, will contribute increasingly to Tesla's revenue mix in upcoming quarters.
Moreover, the firm anticipates that Tesla will recognize over $800 million in deferred revenue over the next 12 months, which would amount to more than $200 million per quarter. This projection underscores the growing financial importance of the FSD software to Tesla's business model, as the company continues to innovate in the autonomous driving space.
In other recent news, Alphabet (NASDAQ:GOOGL) Inc. is expected to disclose its quarterly results, where it is anticipated to reveal its slowest revenue growth in a year. Microsoft Corp (NASDAQ:MSFT). and Tesla Inc. have also been in focus due to their mixed performance in the market. Ford Motor Company (NYSE:F)'s shares dropped by 6% after the automaker announced that it anticipates its full-year profit to be at the lower end of its forecast.
Meanwhile, Toyota Motor (NYSE:TM) Corporation and Nippon Telegraph and Telephone (OTC:NPPXF) Corporation have committed approximately $3.26 billion to research and development aimed at enhancing self-driving technology. The two companies aim to create sophisticated automotive software that uses artificial intelligence to predict and prevent accidents.
In other developments, Tesla maintained its Peerperform rating according to Wolfe Research, despite investor skepticism regarding the company's forecasts. This skepticism centers on Tesla's forecast that deliveries could increase by 20%-30% in 2025. Wolfe Research also updated its model for Tesla's earnings per share, raising its 2024 and 2025 EPS estimates.
These are recent developments that may impact the companies and their investors. As always, it's important to note that these are based on current information and may change as more information becomes available.
InvestingPro Insights
Tesla's financial landscape, as highlighted by InvestingPro data, offers additional context to Piper Sandler's analysis. The company's market capitalization stands at an impressive $842.67 billion, reflecting its dominant position in the electric vehicle market. Tesla's P/E ratio of 66.19 indicates that investors are pricing in significant future growth, aligning with the analyst's focus on the potential of FSD revenue.
InvestingPro Tips reveal that Tesla "holds more cash than debt on its balance sheet" and "cash flows can sufficiently cover interest payments." These factors support the company's ability to invest in innovative technologies like FSD, which Piper Sandler sees as crucial for future margins. Additionally, the tip that "22 analysts have revised their earnings upwards for the upcoming period" suggests growing confidence in Tesla's financial performance, potentially influenced by the increasing importance of FSD revenue.
It's worth noting that InvestingPro offers 19 additional tips for Tesla, providing investors with a comprehensive view of the company's financial health and market position. These insights can be particularly valuable when assessing the long-term impact of Tesla's software-driven revenue streams on its overall business model.
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