The Reason Tesla Bounced Back Up

After two days of losses, tesla regained momentum as its stock jumped 3.5% through 11 a.m. ET.

As 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 would take a bit of a hit from Bitcoin’s value falling by more than half since the end of March.  

The new COVID-19 lockdowns in China have hampered Tesla’s production of cars at a scale in the second quarter. Analysts predict the company will deliver only 280,000 vehicles this quarter versus the 320,000 units delivered in Q1.

Levy thinks the actual delivery number could be as low as 242,000. And this decrease in cars being delivered (and paid for) in the quarter makes Levy cut his predicted profit for Tesla by nearly half.

While a ton of analysts are becoming less optimistic about Tesla’s earnings in Q2, they are not pessimistic about the stock. On the contrary, they still recommend buying it, with its price target implying a 37% profit. It’s not really a surprise.

Elon Musk has consistently insisted that 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 at full speed in Q2, China has effectively created pent-up demand for Tesla cars in Q3, Q4, and beyond.