Tesla's Auto Gross Margin Drives RBC Capital to Increase TSLA PT to $745

RBC Capital analyst Joseph Spak raised the price target for Tesla (NASDAQ: TSLA) to $745 from $718. The increase followed after the company reported in the Q2 2021 report that Auto GM ex-credits hit a record (since Model 3 launched) of 25.8%, which was + 380bps q/q, + 710bps y/y.

On July 26, Tesla reported excellent results for Q2 2021. The company increased its net income tenfold in the three months ending June, to $1.14 billion YoY, surpassing the $1 billion mark for the first time in history.

Tesla CFO Zachary Kirkhorn said during the Earnings Call: "Over the last two years, our vehicle delivery volumes have more than doubled. This volume increase was made possible by a steady decrease in ASPs of more than 10%, driven by a roadmap to increase affordability and shifting mix towards our more affordable vehicles. Yet over that same period of time, our auto gross margin, excluding credit, has increased nearly 10 percentage points to our highest yet since the introduction of Model 3. This is only possible because our average cost per vehicle has reduced by more than the reduction in average price." This remarkable achievement in the context of growing volumes and shrinking ASP is a testament to the hard work of the Tesla team.

Cash
Operating cash flow less capex (free cash flow) of $619M in Q2
Net debt and finance lease repayments of $1.6B in Q2
In total, $912M decrease in Tesla's cash and cash equivalents in Q2 to $16.2B

Profitability
$1.3B GAAP operating income; 11.0% operating margin in Q2
$1.1B GAAP net income; $1.6B non-GAAP net income (ex-SBC1) in Q2
28.4% GAAP Automotive gross margin (25.8% ex-credits) in Q2

In this regard, the RBC Capital analyst raised the price target for Tesla to $745. Spak justified the price increase by saying that "volumes were higher, but cost improved. In particular, we believe a good part of this improvement is because Tesla is now using Shanghai as the primary vehicle export hub." This highlights Shanghai Model 3/Y profitability vs. Fremont 3/Y and Tesla is now serving Europe via China."

Tesla said that while it experienced minor disruptions due to supply chain problems and factory upgrades, production in Shanghai remained high. By upgrading the factory, Tesla was able to make it "as the primary vehicle export hub."

© 2021, Eva Fox. All rights reserved.

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This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Eva Fox, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.