Barclays analysts have raised concerns about Tesla (NASDAQ:TSLA)'s upcoming Q2 earnings report, suggesting the possibility of a negative impact on the stock if results fall short of expectations.
The analysts foresee a potential miss in auto gross margin, estimating it at 16.0%, with a 40 basis points quarter-over-quarter decline driven by weak pricing and the non-repeat of Full Self-Driving (FSD) revenue.
While energy deployments and improving margins might offset some auto weaknesses, Barclays said fundamentals may temporarily pressure the stock.
The bank notes that Tesla's recent stock performance has been strong, driven by improved fundamentals and excitement around future AV/AI ventures such as robotaxi and Optimus.
However, Barclays highlights the "potential risk for the stock" due to uncertainties in Tesla's growth strategy. The analysts note, "Tesla has faced uncertainty from an investment thesis pivot," shifting focus from vehicle manufacturing to AV/AI businesses, which introduces significant unpredictability.
"While we appreciate the potentially disruptive opportunity from these businesses, we believe they cast uncertainty on the path ahead for Tesla, making success of the stock dependent on bets with seemingly binary outcomes," they add.
Despite the excitement and technical factors supporting Tesla's stock, Barclays warns that Q2 results might force investors to confront ongoing fundamental challenges.
The bank states, "We see risk of stock reversion to the extent results disappoint," as margins could remain under pressure. Even if the market reacts negatively to Q2 results, Barclays says the current enthusiasm for Tesla's AV/AI initiatives might only lead to short-lived pressure on the stock.
They remain cautious, maintaining an Equal Weight rating on Tesla, citing the need for "cuts to estimates in the mid-term on weaker volumes" and the considerable uncertainty regarding when fundamentals will improve.
The analysts conclude, "This complicated balance keeps us on the sidelines," reflecting the uncertain outlook for Tesla's stock performance amid its evolving growth strategy.