Is This The Top For Tesla Stock?

Key Points

• Tesla had a stellar quarter, but shares are ready for a correction. 
• The results are as expected and reveal the impact of lower prices. 
• Analysts have been supporting the stock but the recent stock price gains have priced in the Q2 strength

Tesla NASDAQ: TSLA shares have been rocketing higher all year, and by rights, they should continue to do so. The Q2 results are a testament to Elon Musk’s dedication and leadership abilities proving that his strategies work. The company ramped production by a mind-boggling rate compared to last year and is guiding for additional growth this year.

The problem is that the company telegraphed the strength, even though “better than expected,” it was fully priced into the market.

Don’t forget Tesla sparked a rally in its share prices earlier in the month when it released the Q2 delivery data. 

Tesla Has A Banging Quarter: Shares Fall 

Tesla had a stellar quarter delivering 466,140 vehicles. This is up 83% compared to last year and a company record. The problems for the share price begin with the comp to the pre-released delivery figure, which is flat. There was no additional strength in the number, and more problems arise when you look at the revenue figure. 

Revenue of $24.93 billion is $0.200 better than expected, about 80 bps, but only up 47.3% compared to last year. That indicates mix and pricing issues that also weighed on the bottom line results.

With deliveries up 83% YOY, the revenue gain should have been much more substantial. As for outperformance, 80 basis points isn’t much, and most of the newest estimates were consistent with the delivery figures and results. 

The margin news is equally mixed, with gross margin and operating margin falling compared to last year. The GAAP gross margin contracted by 680 basis points to fall below the company’s 20.0% target.

That is compounded by increased operating expenses which also cut into profitability. The adjusted operating margin fell by 180 basis points to 9.6% of sales and is the lowest in many quarters. The decline is blamed on mix and pricing but also the ramp of battery production, the Cyber Truck, AI, and other projects.

Regarding earnings, the $0.91 in adjusted EPS is up only 20% compared to the 83% increase in deliveries and the 47% increase in sales. 

Those looking for a catalyst in the guidance will also be disappointed.

The company is guided to remain ahead of its target 50% CAGR which is only as expected. Worse, the production figure used in the release is 1.8 million, which is 0.08 or 4.2% below consensus.

It’s a grand figure and 1 that supports the stock's long-term trajectory but not 1 to spark a rally with shares trading at over 100X earnings. Factors, including plans for cost reductions, may help support the stock later in the year. 

The Analysts Will Cap Gains In Tesla 

As bullish as some analysts are, the community may cap gains in the stock. The consensus rating is only Hold, and the consensus price target is about 25% below the pre-release price action. At best, the analysts may induce volatility in the stock as they have done in the past.

The only commentary to hit the wires so far is that margin decline may be at a trough, and ramping production and leverage at the Berlin and Texas Gigafactories will help offset future price increases. 

Technically, the stock is in trouble. The market formed a potential Shooting Star candle on the release day, and the post-release action confirms the resistance.

The question is whether the market will buy the dip or keep selling. If it buys the dip, will the stock rebound strongly or consolidate at current levels? If the market buys, the critical resistance is $290; a move above there would be bullish. If not, the stock price could return to $240 or lower.

Regardless, a price pullback will soon hit bottom, forming another buying opportunity in this stock.