Tesla Analyst Has Reason to Be Bullish on Stock Despite Falling Margins

Tesla  (TSLA) – Get Free Report shares retreated nearly 20% Thursday as investors digested earnings results that showed record revenue and strong profits, but also falling gross margins. 

Gross margins were 18.2%, down from 25% over the same period last year and 19.3% over the first quarter.

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“What they did demonstrate in the quarter is that they can cut costs accordingly and keep margins at a fairly solid level,” Deutsche Bank analyst Emmanuel Rosner told CNBC Thursday. “I think the disappointment from the market came from ‘well they are not necessarily telling us that these are trough margins.'”

Deutsche Bank says its view is that while the margins could get even worse from here — especially considering the fact that Tesla says it could be lowering prices even further in the near future — costs are also expected to fall soon. 

A key piece of Deutsche Bank’s longer-term bullish expectations for Tesla is the fact that they expect a vehicle that costs even less than the Model 3 — Tesla’s current cheapest option — to begin production in late 2024 and early 2025. 

“The goal for this next generation vehicle is to get the cost of goods sold to be half of its current vehicles, essentially to build vehicles that don’t cost $40,000, but only cost $20,000,” Rosner said.

“If they are successful in this, they would be able to sell that in massive volume, grab a tremendous amount of market share and do it in a way where the competition wouldn’t be able to catch up for a fairly long time.”

Rosner held his buy rating on the stock and raised his price target to $300 from $270 per share. 

Tesla closed Thursday’s session at $262.90.

Tesla reported record revenue of $24.5 billion (a 47% increase from last year) for its second quarter. This revenue influx came amid the highest levels of both production and delivery that the car company has ever reported.

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