The Tesla Inc (NASDAQ: TSLA) share price took a beating during trade last night as investors responded to the company's first-quarter results.
Amid a barrage of price cuts throughout the quarter, concerns had been mounting about how it would affect the electric vehicle (EV) makers' results. As some had expected, it came at the cost of profit margins.
Still, it seems many were blindsided by the extent of the impact, with shares being sold down overnight.
By the end of the session, the Tesla share price had descended 9.75% to US$162.99 apiece. Whereas, the Nasdaq Composite Index (NASDAQ: .IXIC) finished 0.8% weaker than its previous close.
How low is Elon willing to go?
Before we dive into understanding why exactly the company's shares were sold off heavily, here are important figures from the company's quarterly report:
- Total revenue up 24% year-on-year to US$23.33 billion
- GAAP gross margin down 977 basis points to 19.3%
- Operating margin down 779 basis points to 11.4%
- Earnings per share (GAAP basis) down 23% to 73 US cents per share
- Cash equivalents at the end of the quarter up 24% to US$22.40 billion
Notably, total revenue and earnings per share were only slightly below analysts' estimates heading into earnings. Yet, despite coming within sneezing distance of what was expected, the Tesla share price was ravaged by selling.
The stark reaction could have more to do with comments from Tesla's CEO, Elon Musk, on the earnings call. During the call, Musk leaned into the option of further price cuts in order to fuel higher volumes, stating:
We're making a car that if autonomy pans out, and we think it will, where that asset will actually be worth a hell of a lot more in the future than it is now … It is technically possible to sell it at zero profit, but still have the net present value of future cash flows associated with that asset [be] very significant.
Given past promises of autonomy, these remarks may have inflamed concerns that Tesla could bet its current-day margins on a wishful future.
Not all negative on the Tesla share price
Renowned Tesla bull, ARK Invest, has updated its long-term price target on Tesla shares following the latest results. Much like Musk, the investment team is hinging a bountiful future on autonomy — attributing 58% of its 2027 Tesla valuation to the robotaxi business.
According to the report, ARK Invest envisages the Tesla share price reaching US$2,000 by 2027 under its base case. Meanwhile, the analysts assigned a US$2,500 and a US$1,400 price target to its bull and bear case respectively.
The revised estimate pushes the base price target back one year than previously forecast by the team. However, that didn't stop ARK Invest from adding to its Tesla holdings last night, buying an additional $41 million worth of Tesla shares during the sell-off, as shown above.
Despite last night's collapse, the Tesla share price is still up 50.8% since the beginning of the year.
