The steering wheel of a Tesla Model 3.
NICOLAS ASFOURI/AFP via Getty Images
Tesla has been off to a rough first half of 2021. The stock is down 5.3% year to date, while the S&P 500 has posted a 16% gain.
Goldman Sachs analyst Mark Delaney remains cautiously optimistic on the stock, even raising earnings expectations to 94 cents a share from 84 cents ahead of Tesla‘s (ticker: TSLA) second-quarter earnings report, which will take place on July 26. Delaney maintained his Buy rating on the stock, with a 12-month price target of $860.
Tesla stock closed down 2.5%, at $668.54, on Tuesday, while the S&P 500 was down 0.4%.
Delaney sees updates to the Model Y as a strong earnings driver. Earlier this week, Tesla unveiled a new “standard range” iteration of the Model Y priced at 276,000 yuan ($42,500) for the Chinese market, some 20% cheaper than its original longer-range counterpart. This was in large part accomplished through a 15,480 yuan government subsidy for new-energy vehicles costing under 300,000 yuan.
Tesla is also relying on its factory in China to supply the Model Y to Europe until the company can begin to manufacture in Berlin later in 2021 or 2022. Delaney argues this will help boost the company’s margins because he believes that the standard-range Model Y made in China uses a lower cost LFP battery.
China, the world’s largest auto market, remains a priority for Tesla. However, some investors are concerned about sales there after a woman staged a protest against the company at an auto show held in Shanghai earlier this year, protesting the company’s handling of her brake issue. Some media outlets even reported that Tesla’s orders in China fell nearly 50%.
Yet the impact may not have been as severe as previously expected. Delaney cited data from the China Passenger Car Association that indicated that Tesla sold 62,000 Model 3 and Model Y vehicles in the second quarter compared with 69,000 in the first quarter. Indeed, sales in China appear to be rebounding since the protest, with June deliveries up 28% compared with May, notes Delaney.
Tesla produced 387,000 vehicles globally in the first half of 2021 and delivered 386,000 of those vehicles, prompting Delaney to suggest that the company is supply-constrained, not demand-constrained. In the first quarter of 2021 alone, the company already surpassed the total deliveries from the first half of 2020.
Still, Delaney warns that the combination of chip shortages, high freight costs, and increasing input prices continue to pose risks to his price target.
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