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Tesla stock is worth only $85 after gross margin whiff, analyst says: Wall Street reacts

After Tesla’s mixed second quarter, which featured a bad whiff on gross profit margin thanks to a steady drumbeat of price cuts, one Wall Street analyst is coming out blasting on the the EV maker’s stock.

“I still think Tesla is egregiously overvalued right now,” Roth Capital Partners Tesla bear Craig Irwin said on Yahoo Finance Live (video above).

Coming into the earnings release late Wednesday, Irwin had an $85 price target on Tesla, suggesting downside potential of a whopping 71%.

Tesla shares fell 3% to $281.55 in pre-market trading on Thursday. The company’s ticker page was the most active on the Yahoo Finance platform.

The analyst didn’t rule out slashing his price target further owing to Tesla’s various profit challenges — ranging from price cuts to increased investments in AI software and Cybertruck production.

Irwin added: “We’re very bearish on Tesla. We think people are much better off looking at many of the other names either in conventional auto manufacturers or some of the emerging players as opportunities for investment.”

Tesla’s results had a little bit of red meat for bulls and bears.

On the bullish side of the ledger, Tesla’s sales of $24.9 billion easily beat analyst forecasts for $24.51 billion. Earnings per share of $0.91 topped forecasts for $0.81, and marked a 45% increase from a year ago.

The company reiterated its 1.8 million vehicle production expectation for the year.

For the bears, Tesla’s gross profit margin of 18.2% fell shy of estimates for 18.8%. The figure represented another continued decline from the fourth quarter 2022 peak of 24%.

Tesla's Cybertruck is displayed at Manhattan's Meatpacking District in New York City, U.S., May 8, 2021. REUTERS/Jeenah Moon

Tesla’s Cybertruck is displayed at Manhattan’s Meatpacking District in New York City, U.S., May 8, 2021. REUTERS/Jeenah Moon

CEO Elon Musk struck a downbeat tone on the economy, again.

“One day it seems like the world economy is falling apart. And the next day everything’s fine. I don’t know what the hell is going on,” Musk told analysts on the earnings conference call.

Tesla shares fell 3% to $281.55 in pre-market trading on Thursday. The company’s ticker page was the most active on the Yahoo Finance platform.

Here’s what else Wall Street is saying about Tesla’s quarter.

Wall Street Reacts

Wedbush analyst Dan Ives (Buy rating; $300 price target):

“Tesla delivered its June quarter results where the company saw beats on the top and bottom lines following multiple rounds of aggressive price cuts has put Tesla in a position of strength after building its EV castle and now is set to further monetize its success. The automotive ex-credits gross margin beat was front and center and is clearly an indication that Musk & Co. continue to play chess while other EV players are playing checkers. Overall this was a goldilocks 2Q print by Musk & Co. given all the noise surrounding the story heading into this quarter.”

Citi analyst Itay Michaeli (Neutral rating; $278 price target):

“A mixed outcome that aligns with our previewed neutral-to-slightly negative setup. Q2 revenue ~1% ahead and gross margin in-line, but GAAP operating profits and free cash flow below. EPS beat but largely on a below-the-line gain. The outlook commentary didn’t shed much light on the second half margin bridge but Q3 is expected to face some factory downtime (for upgrades) that could yield some inefficiencies. The future role of AV/full self driving was once again heavily emphasized on the call—a view that fully aligns with our own industry thesis around AV/AI being the biggest value unlock in this race. Still, for this to anchor the Tesla investment thesis, we’d need to see more evidence of full self driving progress (including on the licensing front) given Tesla’s unique approach. We expect the shares to trade modestly lower as the current valuation likely needed a stronger Q2 outcome. That said, no major surprises here either.”

Guggenheim analyst Ron Jewsikow (Sell rating; $125 price target):

“Overall, while the print was better than feared, forward-looking pricing, production, operating leverage and demand commentary will likely weigh on shares following the considerable run in the stock since disappointing 1Q23 results were reported on 4/19 (+79% vs. +11% S&P 500). We continue to believe the direction for pricing and margins is lower near-term, a difficult backdrop with shares trading at ~75X our FY24 EPS estimates.”

Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.

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