Goldman raises its Tesla stock target, previews Q2 earnings

Goldman Sachs analysts have raised their estimates and price target for Tesla (NASDAQ:TSLA) following stronger-than-expected Q2 deliveries while maintaining a Neutral rating on the stock.

The Wall Street giant has lifted its price target from $175 to $248, which is roughly 5% lower than Tesla’s last closing price.

Earlier this month, Tesla reported preliminary Q2 vehicle deliveries of approximately 444,000, a 15% increase quarter-over-quarter but a 5% decrease year-over-year. Production was around 411,000 vehicles, a 14% year-over-year decline. In comparison, Q1 deliveries were about 387,000, with production at roughly 433,000.

The Q2 deliveries exceeded the Visible Alpha Consensus of approximately 439,000 by 1%, and surpassed Goldman Sachs' estimate of 415,000 by 7%. The numbers also surpassed the investor-anticipated range of 410,000 to 430,000 based on intra-quarter data points, Goldman noted.

"We attribute the better volumes to a combination of factors including inventory reduction, incentives from Tesla, and the Model 3 Long Range variant recently regaining IRA credit eligibility in the US," analysts said in a note.

Looking ahead, Goldman Sachs highlights several key points regarding Tesla's outlook.

They foresee key debates shifting towards vehicle pricing and Tesla’s automotive non-GAAP gross margin, with inventory reduction seen as a positive indicator for future pricing. However, lower production and the cost of 0%/low financing incentives could turn into margin headwinds, alongside potential tariff impacts.

They project Tesla's non-GAAP automotive gross margin to decline to 15.3% in Q2 2024 from 16.4% in Q1 2024 and 18.1% in Q2 2023 due to these factors.

“We believe this will be driven by lower production (both qoq and yoy), and the incentive/pricing actions Tesla has used,” analysts said.

They also pointed out the outlook and timing for new, lower-cost models and variants, which Tesla plans to start shipping as early as late 2024 or 2025. They believe these new models will likely incorporate design elements from existing models but with potential modifications.

The bank now sees Tesla’s volume estimates of 1.811 million vehicles for 2024, aligning with the Visible Alpha consensus of 1.80 million, and maintains their 2025 forecast at 2.1 million. Moreover, lower-cost models are expected to positively impact Tesla’s market share, which currently stands at approximately 50% in the US EV market, 10-20% in select European countries, and high-single digits in China.

Lastly, Goldman’s team emphasized Tesla’s progress with Full Self-Driving (FSD) technology and the upcoming August 8 robotaxi event.

Analysts view Tesla as a leader in AI and software technology within the automotive sector, with software and services potentially contributing significantly to Tesla’s earnings by 2030. However, they note that achieving a Level 3 version of FSD will take more time.

For robotaxis, Goldman Sachs sees an early-stage revenue opportunity based on current ride-sharing market prices and projected deployment of robotaxi vehicles.