Tesla reported better-than-expected earnings per share and discussed several key developments during the Wednesday evening earnings conference call. While the current numbers for the auto business were satisfactory, the focus shifted to longer-term issues that extend beyond car assembly.
Full Self-Driving Capability and Discussions with Auto Maker
During the conference call, CEO Elon Musk revealed that Tesla is already in discussions with a major auto maker regarding licensing its Full Self-Driving Capability (FSD) technology. FSD is Tesla’s advanced driver assistance software that aims to enable fully self-driving vehicles and launch a robotaxi business. Musk acknowledged his past optimism about FSD’s capabilities, but expressed confidence that the software will surpass human drivers by the end of this year.
Sum-of-the-Parts Valuation
Investors have long debated how to value Tesla as a company. While some view Tesla solely as a car company, others consider its diverse operations in EV batteries, energy storage systems, solar power, self-driving software, and insurance as integral to its value. This sum-of-the-parts valuation approach recognizes the potential value of Tesla’s various businesses instead of solely relying on overall bottom-line earnings.
Analyst Perspectives
Wedbush analyst Dan Ives sees Tesla’s monetization of its supercharger network, combined with the development of FSD, as a significant boost to its overall value. Ives rates Tesla stock as a Buy, raising his price target to $350 from $300. On the other hand, Wells Fargo analyst Colin Langan is more cautious, rating Tesla stock as a Buy with a $265 price target.
Despite the short-term numbers and operating-profit margins, Wall Street is eagerly focused on Tesla’s long-term prospects. The discussions surrounding FSD technology, Dojo computers, and artificial intelligence have captured the attention of analysts. As Tesla continues to innovate and expand beyond just assembling cars, its future as a technology powerhouse becomes increasingly enticing.
The Importance of Lidar in Autonomous Vehicles
Many industry experts remain skeptical about the feasibility of fully self-driving cars (FSD) without the use of Lidar technology. Lidar, which stands for laser-based radar, acts as a crucial set of eyes for autonomous vehicles. While most automakers rely on Lidar for their advanced driver-assistance systems, Tesla has taken a different approach, opting not to incorporate this technology.
Complexities in Licensing FSD and Addressing Liability Risks
Another factor contributing to skepticism is the complexity of licensing FSD technology and addressing liability concerns. The insurance industry faces the challenge of determining appropriate insurance policies for owners of autonomous vehicles, further complicating the adoption of FSD.
Tesla’s AI Capabilities and the Impressive Dojo Supercomputer
During Tesla’s recent conference call, there was a significant focus on the company’s AI capabilities and the use of its state-of-the-art Dojo supercomputer. Dojo has been specially developed for training Tesla’s self-driving software, making it a crucial component of their autonomous driving system. This emphasis on AI and cutting-edge technologies like Dojo enhances investor confidence in Tesla’s future prospects.
Analysts’ Insights and Expectations
Baird analyst Ben Kallo reiterates his belief that Tesla stock is a top pick, particularly in 2023 after a successful second quarter. He highlights the importance of Tesla’s AI capabilities and the development of their self-driving software through Dojo. Kallo maintains his Buy rating on Tesla’s stock with a price target of $300.
Canaccord analyst George Gianarikas acknowledges that second-quarter results were lukewarm but emphasizes that Tesla is strategically investing in growth areas such as FSD, battery capacity, and robotics. He believes these investments will lay the foundation for long-term success. Gianarikas rates Tesla stock as a Buy with a price target of $293.
Investor Sentiment and Stock Performance
Currently, investors are more concerned with Tesla’s current results rather than its potential for future growth. As a result, Tesla’s stock has experienced a 4% decline in Thursday morning trading. In comparison, the S&P 500 and Nasdaq Composite are relatively stable, with minute fluctuations. It is important to note that despite this recent decline, Tesla stock has shown substantial growth, with a year-to-date increase of approximately 137%.
Wall Street Ratings and Analyst Price Targets
Although the recent results didn’t lead to any changes in Wall Street ratings, 43% of analysts covering Tesla still maintain a Buy rating on the company’s shares. This percentage is slightly lower than the average Buy-rating ratio for stocks in the S&P 500, which stands at around 55%. The average analyst price target has seen a minor increase, climbing from $230 to approximately $235 following the earnings report.
