Electric-vehicle maker Tesla crushed earnings estimates Wednesday evening. Its stock initially popped in after-hours trading, but closed down 5% on Thursday.
Figuring out Tesla stock (ticker: TSLA) can be hard, but there are a few reasons for its weak performance Thursday.
No Love From Analysts
Wall Street was impressed with the results, but not overly so. “Good but not great,” wrote Bernstein analyst Toni Sacconaghi in a Wednesday research report, adding Tesla’s “valuation implies nearly world domination.”
That’s a good line. Tesla is the world’s most valuable auto maker now. Sacconaghi’s sentiment was echoed all around Wall Street, as analysts admitted it was a great quarter but asked: Where does the stock go from here?
Tesla stock caught one upgrade and one downgrade on Thursday. New Street Research analyst and Tesla bull Pierre Ferragu downgraded shares to Hold from Buy. Cowen analyst and Tesla bear Jeffrey Osborne upgraded shares to Hold from Sell. Ultimately, they both ended up at the same lukewarm rating.
Stock Offering
A second-quarter profit was essentially the last step in qualifying Tesla stock for inclusion in the S&P 500. That’s good news for bulls because it generates demand for Tesla stock from index funds and others that track the S&P 500 closely. But it is possible Tesla will sell stock to help facilitate a smooth transition into the index. A stock sale offsets any buying pressure, lessening volatility and probably taking away the chance of a stock price spike.
Earnings Quality
Tesla sells regulatory credits generated by producing more than its fair share of zero-emission vehicles. It has always sold them and will for years to come. But it sold a lot in the second quarter. Bears think that means the quarter was low quality with respect to earnings.
True or not, the sentiment appears to depend on whether someone is a Tesla bull or bear to begin with.
GLJ analyst Gordon Johnson is a Tesla bear and he thinks the company pulled forward emissions credit sales from future periods to generate the needed profit for S&P inclusion. What’s more, he thinks other auto makers will need to purchase fewer credits in coming years as other EV programs ramp up. He sees the cash source drying up in the future.
Johnson rates Tesla shares the equivalent of Sell and has a very low $87 price target for shares. The average analyst price target for Tesla stock is about $1,165 a share now, according to FactSet.
And the Stock Is Up—A lot
It might go without saying, but Tesla shares have soared over the past year, gaining about 475% and crushing comparable returns of the S&P 500 and Dow Jones Industrial Average —and automotive peers.
But the stock has now declined following the past two strong earnings reports. Investors expect a lot from Tesla these days.