Tesla stock rises on bullish Barclays delivery forecast

·3 min read

Tesla (TSLA) stock is on the move higher as Barclays sees bullish signs for the EV-maker’s first quarter performance.

In a note this morning, analyst Dan Levy projects Tesla delivering 425,000 vehicles globally in Q1, beating what Barclays sees as consensus estimates of 420,000 vehicles - and that beat could be another catalyst for the stock. Levy also sees some upside to production as well, writing “we believe commentary on the pace of production likely implies some upside, which we assume will be ~430,000 units in the quarter.”

Levy writes that Tesla’s recent Investor Day on March 1 provided some of the reasoning behind that 430,000 production target. During the presentation, Tesla execs mentioned the company had reached 4 million vehicles produced since its inception, and since estimates before Q1 had seen the company hit around 3.725 million, Levy says this implies around 275,000 produced through the first two months of Q1. With the situation improving in China, and Berlin and Austin gigafactories ramping up, Levy says 430,000 vehicles produced is in reach.

Elon Musk and Drew Baglino at Investor Day
Elon Musk and Drew Baglino at Investor Day

Earlier in the year Tesla was facing what some analysts thought of a demand problem, with production outpacing deliveries. Price cutting both domestically and abroad, as well as the IRA (Inflation Reduction Act) effect here in the U.S., have switched the story from one of of demand constraint to one of a supply constrained model, Levy writes, though there are some key considerations.

For one, despite the price cuts and IRA tax credit boost lifting sales, elevated inventories may be the norm for Tesla. “Datapoints have emerged showing rising inventory in Europe, and also for Model S/X in the US. Accordingly, we expect the net of this is for inventory to remain ‘elevated,’ at least relative to Tesla standards, and production to likely at least equal deliveries, and more likely exceed deliveries,” he says.

And with that, more price cuts may be coming for Tesla, which would eat into margins as the company has to compete traditional automaker who are coming into the marketplace, and offering price cuts of their own. However, Levy and Barclays feel Tesla can weather these price cuts better than any other operator in the space.

“We believe price cuts are likely to be core for Tesla in unlocking additional volume, especially as Tesla ramps on further capacity,” Levy says. “Tesla’s margins are currently exceeding the ICE margins of other OEMs, and EV margins for the legacy OEMs are by and large still quite negative. And with others likely to face a long path to reaching appropriate EV margins, we expect the Tesla cost lead to be sustained for quite some time.”

Finally, Levy says that while Tesla’s gross margins may be pressured by factors like price cuts and the potential loss of IRA tax credits for some models due to battery sourcing, in the long term Levy says cheaper materials pricing, and the benefits of economies of scale for its factory ramp ups across the globe will continue “to offer a COGS (cost of goods sold) tailwind throughout the year,” which would benefit those gross margins.

Barclays has an overweight rating on Tesla, along with a $275 price target — implying 44% upside for the stock.

Tesla Model Y crossover SUV
Tesla Model Y crossover SUV

Tesla will likely report Q1 delivery figures shortly after April 1, which will be a big report for investors to keep an eye on. Thus far for the year (and nearly all of Q1), Tesla shares are up a healthy 58%.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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