Tesla’s sales of regulatory credits fell, but operating profits increased.
John Thys/AFP via Getty Images
The electric-vehicle company Tesla reported its best quarterly results ever Monday evening, but investors and analysts are greeting the news with measured optimism—a sign that Tesla is maturing as a company.
Tesla (ticker: TSLA) reported $1.45 in adjusted per-share earnings for the second quarter, far higher than the roughly 95 cents analysts were looking for. Sales from regulatory credits–a source of revenue seen as less sustainable than sales of vehicles–fell, but operating profits rose to record highs because of strong profitability in the automotive division.
Tesla generates the credits by making more than its fair share of zero-emission cars and selling them to manufacturers that still rely on internal-combustion engines. Pessimists on the stock believe that source of income will dwindle over time.
The stock had slipped 2.5%, at $641.49. The S&P 500 and Dow Jones Industrial Average, for comparison, had fallen about 0.7% and 0.4%, respectively.
It is a muted reaction to a good quarter, typical of the way stocks of mature businesses behave. Apple stock (AAPL), for instance, has moved about 4% up or down in response to earnings reports over the past 12 quarters.
Tesla’s stock, before the second quarter of 2021, moved about 7% up or down after earnings over the prior 12 quarters. What’s more, Tesla stock moved more than 10% in response to three of the four 2019 quarterly reports. But Tesla’s postearnings volatility is dropping. Shares rose or fell an average of about 2.5% in response to the 2020 earnings reports.
And the typical 2020 move was a fall in the price in response to news of better-than-expected results. The same thing happened after the release of results for the first quarter of 2021.
That is another sign of maturity. A small drop in response to better-than-expected results is typical for stocks. Investors always expect companies to exceed analyst projections, and when they get that result, they “sell the news.”
The reaction among Wall Street analysts to the latest results is yet another sign of maturity. Mizuho analyst Vijay Rakesh raised his target for Tesla’s stock price by $5 to $825 following the news, for a bump of less than 1%.
Back in January, RBC analyst Joe Spak raised his target price to $700 a share from $339 after changing how he thought about Tesla’s business. That was a huge target-price change from a large broker.
Smaller changes in price targets can indicate a business is becoming more stable and that analysts believe they have a grip on what is happening. That reduces the need for them to dramatically overhaul their views in response to events.
Overall, the average analyst target price on Tesla shares is up about $18, or 3%, in reaction to Monday’s results, to about $644 a share. The shares are trading about 1% or 2% above the average analyst target price.
Target prices generally reflect where analysts think a stock should trade to earn a fair return out into the future. The average target price on stocks in the S&P 500 implies a gain of 7%.
Even the fact that Tesla is trading around its average analyst target price is a sign of maturity. A year ago, the average target price for Tesla stock was about $225, while the price was above $300.
Shareholders and bulls on the stock might like a bigger response from the stock when earnings come in strong, but the days of 20% moves, up or down, might be gone for Tesla. That is more evidence that Tesla is here to stay as the world’s most-valuable car company.
Write to Al Root at [email protected]
