Tesla's stock removed from Baird's bearish list with analysts bullish on robotaxis and energy

By Ciara Linnane

Analysts still expect a 'messy' first quarter and say second-quarter expectations are too high

Baird removed Tesla Inc. from its Bearish Fresh Pick list on Tuesday and said the news that the company's robotaxis would debut on Aug. 8. combined with growth in the energy business, were positives that weigh against weaker-than-expected delivery numbers.

Analysts led by Ben Kallo said they have fielded dozens of calls regarding Tesla's (TSLA) recent first-quarter production numbers and nearly half centered on whether the bad news is now priced in to the stock.

"We think Q1 results will be messy due to several one-time items and continue to believe Q2 estimates are likely still high," Kallo wrote in a note to clients. "On the other hand, the announced Robotaxi unveil, emphasis on increasing FSD (full self-driving) attach rates, and Energy business growth are positives."

Baird named Tesla a Bearish Fresh Pick at the end of January, after a Delaware judge voided Chief Executive Elon Musk's 2018 $56 billion compensation package, siding with a shareholder plaintiff and calling the process to arrive at that eye-watering number "deeply flawed."

"Musk had extensive ties with the persons tasked with negotiating on Tesla's behalf" and the package's working group included people "beholden to Musk," Delaware Chancery Court Chancellor Kathaleen McCormick wrote at the time.

Since then, the stock has remained under pressure amid concerns about a demand slump in China, where Tesla faces stiff competition from domestic car markers, and pressure on EVs overall.

In early April, the EV maker posted delivery figures that fell far short of Wall Street's already dimmed expectations.

For more, read: Tesla's stock slumps as delivery numbers miss the mark by a wide margin

On Monday, Musk admitted that competition from China and the wider auto sector remains on his radar, but said EV adoption is continuing and is "quite fast."

The billionaire also spoke about artificial intelligence, opportunities in India and other topics in an interview with Norges Bank Chief Executive Nicolai Tangen published Monday on X, the Musk-owned social-media platform formerly known as Twitter.

Read now: Elon Musk stands his ground on EV adoption, but admits threat of Chinese competition

Kallo said Musk's announcement of a robotaxi launch in August, which came in response to a Reuters report that it was scrapping plans for a low-cost $25K EV, had changed his mind on his bearish call.

"We speculate Tesla likely unveils both a robotaxi and a $25k vehicle," the analyst wrote. "In the past Tesla shares have traded higher into these events and become a "sell the news" event."

To be sure, Musk has in the past regularly made promises regarding product launches that have not materialized. More recently, there have been concerns that Musk is spread too thin, given he also heads up X, the former Twitter, SpaceX, and the Boring Company and recently started up an artificial-intelligence company called Grok, which is developing a chatbot to compete with OpenAI's ChatGPT.

From the archive: Tesla has not lived up to Elon Musk's biggest promise yet

Kallo conceded that Tesla is still facing a demand issue in the higher interest rate environment, which will remain a headwind through at least the first half.

And there's a risk the company will need further price cuts to boost sales, but that could come in different forms, the wrote.

"Although they increased the base price in several regions, we have since seen price cuts through other methods such as 0% financing (China)," he wrote. "We think TSLA continues to pull levers to increase demand pointing to continued pockets of soft demand."

In the meantime, second-quarter numbers are too high and the company is facing difficult comparisons from a strong year-earlier quarter.

A continued ramp of advertising spend, another topic clients frequently ask Baird about, would be bullish for the stock, said the note.

Baird's longer-term view of Tesla is that the stock is an outperform.

Tesla's stock was up 1.6% Tuesday, but has fallen 29% in the year to date, while the S&P 500 SPX has gained 9%.

-Ciara Linnane

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04-09-24 1347ET

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