Tesla bears will be hard-pressed to find a negative narrative around the company’s recent earnings, according to Morgan Stanley analysts (TSLA)

  • There wasn’t much for bears to latch onto in Tesla’s second-quarter earnings, Morgan Stanley analysts wrote in a recent note to clients.
  • The analysts highlighted three key takeaways from its earnings, including that increased production in China has led to positive margins for Tesla.
  • Tesla’s “outstanding” cash-flow management in the quarter was also noted.
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Tesla bears are going to be hard-pressed to find any compellingly negative takeaways in the electric car company’s recent quarterly earnings, according to Morgan Stanley analysts.

“In our opinion, bears really would have to nit pick at the release to construct a materially negative narrative here,” analysts wrote in a note released by Morgan Stanley that examined three key takeaways following Tesla’s fourth consecutive profitable quarter which was detailed in its Q2 earnings on July 22.

While the analysts acknowledged there were critiques to be made, including its lower sequential average sales price, lower-than-expected fixed costs that wouldn’t remain, and the outsized role that sales of regulatory credits played in driving its revenue, they largely highlighted the overall strength of the quarterly results.

The first takeaway: more production in China equates to a positive for Tesla’s margins. 

The second quarter “marked a step change where Giga Shanghai accounted for a sharply higher proportion of global production and deliveries, magnifying the benefit to marginal profitability despite lower sequential ASPs,” the research note said.

Secondly, the analysts noted Tesla’s “outstanding” cash-flow management, which was $418 million for the quarter and exceeded analysts’ expectations.

The analyst’s final point was that comparing Tesla’s second-quarter performance of positive profit and positive FCF to other auto companies “further makes comparisons between high EV players and established ICE players less and less meaningful.”

The research note published by Morgan Stanley ranked Tesla’s stock rating as underweight with a price target of $740.

Tesla topped Wall Street’s expectations on Wednesday after the American electric vehicle and clean energy company posted its longest-ever profitable streak.

Tesla’s earnings per share (adjusted) came out to $2.18 versus an expected loss of $0.15, while posting a second quarter revenue of $6.04 billion versus an expected $5.2 billion. 

“We believe the progress we made in the first half of this year has positioned us for a successful second half of 2020,” Tesla said in a press release. “Production output of our existing facilities continues to improve to meet demand, and we are adding more capacity. Later this year, we will be building three factories on three continents simultaneously.”

On July 22, Tesla’s CEO and product architect Elon Musk also announced that the company plans to grow its California insurance offering into a “major insurance company” nationwide. Tesla plans to use the data from its cars’ computers to determine insurance rates for drivers based on how aggressively they drive.

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