Can Tesla Stock Rally on Earnings?

Tesla Earnings

Tesla’s earnings are always a big deal, for lovers and haters of the stock alike. Recent reports have been greeted with disappointment—even when they “beat”—Monday’s release of Tesla’s first-quarter results should be enough to kick off a rally in the stock.

That’s hasn’t been the case recently. Tesla (ticker: TSLA) gained 740% in 2020, and those big gains lead to higher expectations, expectations that Tesla stock found hard to beat. In fact, Tesla stock has dropped the week following the past four quarterly earnings reports.

This time should be different. After gaining more than 740% in 2020, Tesla stock is up just 3% in 2021—less than both the Dow Jones Industrial Average and the S&P 500 —and has dropped nearly 20% from its January high of about $900. It’s hard to point to any one thing for Tesla’s recent slide, but the company has had a series of public relations setbacks in Texas and in China, and has been facing increasing competition from the likes of General Motors (GM) and Volkswagen (VOW3.Germany). Gravity is probably involved too.

But the sizable recent loss should mean investors have lower expectations. And so do analysts, for that matter. Wall Street is looking for earnings of 75 cents a share on $10.4 billion in sales. That compares with 80 cents in per-share earnings from $10.7 billion in sales reported in the fourth quarter of 2020.

The first-quarter numbers look achievable. The company delivered about 4,000 more cars in the first quarter than in the fourth, a positive, but delivered fewer higher-priced Model S and Model X cars. But there are other positive offsetting factors too, including the fact that Tesla also started shipping a Chinese-built Model Y, which should improve overall profit margins.

The final wild card in the quarterly numbers will be regulatory credit revenue, which Tesla earns for selling zero-emission vehicles. That revenue averaged roughly $400 million a quarter in 2020. It’s hard to predict how sales will develop in 2021.

That seems like a pretty good setup for Tesla, according to Wedbush analyst Dan Ives. “With a strong number and positive focus on deliveries for ’21, Tesla takes the next step toward $1,000,” he says. He rates shares Buy and has a $1,000 price target.

That Ives, a Tesla bull, expects a good quarter might not be a surprise. That some bears do too could be considered one. After Tesla reported first-quarter deliveries, J.P. Morgan analyst Ryan Brinkman, who has an Underweight rating and $155 price target on Tesla stock, raised his quarterly earnings estimate to 90 cents a share from 84 cents. That’s not something you see every day.

Earnings are unlikely to settle the long-term debate over Tesla’s value, but when even the bears see a good quarter, earnings could finally be a catalyst for the stock to move higher.

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