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On October 20, Tesla (NASDAQ: TSLA) reported Q3 financial results that exceeded analysts' expectations. In this regard, investment firms began to massively increase target prices, highlighting various aspects of the manufacturer's development. Tesla also received a retained PT of $1,080 from Oppenheimer, as the company has been demonstrating the value of its data advantage.
The firm's analysts wrote that Tesla posted better-than-expected margins and earnings per share in the third quarter, indicating that the company is demonstrating the benefit of its software-defined vehicle architecture and the learning cycles it enables. They noted that management walked through an exceptional level of detail on data collection regarding driver behavior in pricing its insurance offering. Additionally, Oppenheimer believes Tesla is leveraging usage pattern data and system optimization (materials and software) to migrate standard range vehicles to LFP cathodes. The firm believes that the company is also utilizing insights into vehicle performance with NHTSA to help shape the safety debate on self-driving cars. As Tesla continues to overcome global supply chain challenges, analysts expect it to continue to outpace the competition and to test demand elasticity with higher vehicle prices to support margins while ramping incremental capacity.
De-risking the global capacity ramp. TSLA reiterated its target of achieving initial production in both Austin and Berlin by year-end. While Oppenheimer views this as a significant milestone for future growth inflection, given the number of crosswinds (supply chain, new manufacturing and production processes, new locations, etc.) the firm believes setting a conservative baseline of deliveries in 2022 is warranted and reflect that in their estimates.
Insurance demonstrates data flywheel. With TSLA launching its insurance offering, it is delivering on its ambition to leverage its data to reduce cost of ownership and establish new revenue streams. While Oppenheimer expects a gradual rollout given individual state-level oversight, it views TSLA's data advantage providing it superior risk-based pricing capability, allowing it to capture more value per customer, while further enhancing FSD development.
What happened? TSLA reported 3Q21 revenue of $13,757M vs. consensus' $14,266M estimate. Non-GAAP EPS was $1.86 vs. the consensus estimate of $1.66. Auto revenue was $12.057M; Energy Generation & Storage revenue was $806M; and Service/Other revenue was $894M. Automotive GM ex-credits was 28.8% (30.5% incl.credits) vs. cons. 25.1% E, up 300bps sequentially and up 510bps yr/yr. Final deliveries were 241,391 units.
How was guidance? TSLA maintained its LT outlook of 50%-plus vehicle delivery growth over a multi-year horizon, with continued operating margin expansion. Progress remains on track to produce the first Model Y vehicles out of Berlin and Austin in 2021. Cybertruck is slated for Austin production following Model Y.
"We are making only modest updates to our estimates and retaining our $1,080 price target. Our FY21 revenue and adj. EPS estimates are now $49.8B and $5.62 (were $47.7B and $4.63). Our FY22 estimates reflect $57.1B and $5.94 (were $52.8 B and $5.62)."
The firm believes TSLA has the potential to be a transformational technology company and deliver outsized returns. Oppenheimer believes the company's execution on Model 3 and Y volumes in the medium-term and cost reduction, largely from a battery perspective, are critical to realizing positive incremental operating margin and cash flow necessary to support sustainable profitability.
Their PT of $1,080 is based on 85x of 2025 EPS of $15.69, discounted two years at 10% (unchanged). Oppenheimer's multiple reflects the sustained equity market multiple expansion and attributes a premium given TSLA's position as a leader in electric vehicles, its opportunity to monetize its self-driving capabilities, and its demonstrated track record of innovation.
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