What happened
Regaining its momentum after two days of losses, Tesla (TSLA 1.85%) stock jumped 3.5% through 11 a.m. ET on Friday. Curiously, it was a cut to the price target from Credit Suisse that seems to have provided the push that got Tesla moving higher.
So what
As StreetInsider.com reports this morning, an analyst at the Swiss investment bank cut his price target on Tesla from $1,150 to $1,000 to account for a "lower deliveries outlook, the associated margin impact" of those slower deliveries -- and a big hit to profits in consequence. The analyst, Dan Levy, also noted that Tesla will take a bit of a hit from Bitcoin's value falling by more than half since the end of March.
COVID-19 lockdowns in China have hobbled Tesla's ability to produce electric cars at scale in the second quarter. Most analysts are predicting the company will deliver only 280,000 vehicles this quarter, versus the 320,000 units delivered in Q1. Levy thinks the actual deliveries number could be as low as 242,000. And with so many fewer cars being delivered (and paid for) in the quarter, he has decided to cut his predicted profit for Tesla by nearly half -- to just $1.10 per share.
If the analyst is right about that, it's going to come as a very big shock to investors betting on Tesla hitting Wall Street's consensus target for the quarter: $2.08 per share. But if this is the case, then why are investors bidding Tesla stock up today, instead of down?
Now what
While Credit Suisse is incrementally less optimistic about Tesla's earnings in Q2 2022, it's not at all pessimistic about Tesla stock. To the contrary, it continues to recommend buying Tesla. And with its price target implying a 37% profit off of today's prices, that's really no surprise.
Elon Musk has been consistent in insisting Tesla doesn't have a demand problem (i.e., not enough people wanting to buy Teslas). Instead, he says Tesla has a production problem (i.e., Tesla not being able to build cars fast enough to satisfy all the buyers who want to buy them). China's COVID-19 crackdown hasn't changed this dynamic, but rather heightened it. In preventing Tesla from building electric cars full speed in Q2, China has effectively created pent-up demand for Tesla cars in Q3, Q4, and beyond.
Long story short, it's entirely possible that Tesla will both miss earnings in Q2 and then turn around to meet or beat earnings expectations in future quarters, so that it still hits analysts' target of $10.57 per share in profits by the end of this year. Granted, that still leaves investors with the question of whether the automaker deserves to be priced at nearly 70 times current-year earnings. But if you do believe it's worth that much, then I'd say there's still a very good chance Tesla will deliver the earnings by year-end.
