Bank of America upgrades Tesla, says first-quarter report opens door for strong gains ahead

Published Wed, Apr 24 20246:51 AM EDTUpdated Wed, Apr 24 20249:36 AM EDT

Bank of America thinks Tesla's first-quarter results mark the start of a big turnaround. Analyst John Murphy upgraded the electric-vehicle maker to buy from neutral. He also reiterated his price target of $220, which implies upside of 52% from Tuesday's close. The upgrade comes as Tesla reported weaker-than-expected earnings and revenue for the first quarter. The company's 9% revenue drop was its steepest year-over-year decline since 2012 . Still, shares spiked more than 10% in the premarket Wednesday after CEO Elon Musk said production of new affordable vehicles can begin sooner than anticipated. TSLA 1D mountain TSLA pops BofA's Murphy noted that the quarterly numbers "essentially knocked out the recent negative catalysts with facts or reasonable explanations." These explanations include: "Slow volume growth, which may continue until new products are launched in 2025, but in the interim may be supported by lower pricing." "Price cuts had been expected to weigh on gross margins, but TSLA's cost saving efforts resulted in margins that were far better than feared." "Model launch concerns, particularly pertaining to the low-cost platform, were mitigated with TSLA's decision to pull forward the launch schedule and broaden its capabilities by leveraging existing architecture and capacity." Murphy also said positives are building as the year goes on, including a faster-than-anticipated launch for an affordable vehicle, the Aug. 8 robotaxi event and cost savings following the company's workforce reduction . "Admittedly, the combination of all of these may not structurally change the long-term path of the company, but in the near-term the tide in news flow appears to suggest the risk to the stock is skewing more positively," Murphy said. Morgan Stanley's Adam Jonas is also relatively bullish on the stock with an overweight rating. He also maintained his price target of $310 per share following the quarterly results. According to Jonas, the first-quarter results had reasons for both "bears and bulls [to] rejoice." "Results were not as bad as many feared, but questions remain regarding near-term growth/profitability," Jonas wrote in a Tuesday note. Not everyone is convinced To be sure, not all analysts were as optimistic as Jonas at Morgan Stanley and Murphy at Bank of America. Bernstein's Toni Sacconaghi reiterated his underperform rating on the stock. He noted that "Tesla's Q1 results were largely fine, aid lowered expectations." Sacconaghi remains skeptical about the company's shift toward autonomy and robotaxi. "We struggle with why Tesla needs a discrete robo-taxi offering, and we believe widespread deployment of FSD [full self-driving] is 5 - 10 years away, and that FSD will not necessarily be a winner take all market," he added, noting the current limitations and shortfalls of the technology. Goldman Sachs also acknowledged that the report came above its "relatively low" expectations, thanks in large part to its better-than-expected automotive non-GAAP gross margins and update on its low-cost model. The new, more affordable car — not the Model 2 — will use elements from existing lines to "pull-in timing should help to mitigate intermediate to longer-term growth concerns," Goldman analyst Mark Delaney wrote in a Wednesday note. Goldman stuck with its neutral rating on the stock. The firm's $175 price target suggests 21% upside from Tuesday's close. UBS is also staying on the sidelines. Analyst Joseph Spak reiterated his neutral rating while notching down his price target to $147 from $160. Spak believes near-term visibility is cloudy due to its pivot to AI. "TSLA took the ultimate bear case off the table as there is a new, lower-cost product coming," Spak said in a Tuesday note. However, "while we see improvement from 1Q24 levels, we see limited growth for [the] current lineup and lack of clarity on what these 'new vehicles' could bring." Wells Fargo's Colin Langan reiterated his underweight rating, citing uncertainty around the new models. "We suspect the release of deferred [full self-driving] sales explains most of the Q1 beat. Post call excitement, fundamental risks around demand & px pressure continue," Langan said in a note.