Thursday, February 29

Tesla busts latest AI moves, but stock falls as vehicle deliveries miss analysts’ targets

Tesla hosted its second AI Day late on Friday, with the company giving an update on its Optimus robot and progress around full self-driving, or FSD, and the Dojo supercomputer.

Tesla Inc. shares
fell 5% before market open on Monday following the company’s Sunday announcement that it produced over 365,000 vehicles and delivered over 343,000 in its just-completed third quarter. While the number of vehicles delivered marked a record for Tesla, it was shy of Wall Street estimates. Analysts were looking for about 371,000 deliveries, according to FactSet data.

“Historically, our delivery volumes have skewed towards the end of each quarter due to regional batch building of cars,” Tesla said in a statement. “As our production volumes continue to grow, it is becoming increasingly challenging to secure vehicle transportation capacity and at a reasonable cost during these peak logistics weeks.”

The company’s stock ended Friday’s session down 1.1%, compared with the S&P 500 Index’s
decline of 1.5%. Tesla shares have declined 24.7% this year, while the S&P 500 Index has fallen 24.8%.

Baird Equity Research was looking for third-quarter deliveries of 385,000 vehicles, but analyst Ben Kallo says that Tesla is well positioned for the fourth quarter. “Despite Q3 weakness, the setup for Q4 is strong,” he wrote, in a note released on Sunday. The analyst pointed to reports estimating fourth-quarter production targets of 495,000 vehicles, helped by the ramp up of Tesla factories in Berlin and Austin, as well as its Shanghai facility returning to full production.

See: Tesla reports record deliveries, but numbers are still shy of analysts’ targets

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Baird maintained its’ outperform rating for Tesla.

While Tesla’s deliveries missed consensus, they were closely in line with JPMorgan’s model, according to analyst Ryan Brinkman. “We continue to see the potential for a positive surprise on price vs. cost resulting from vehicle-price increases instituted in the aftermath of the Russian invasion of Ukraine, which were meant to offset then-surging battery metals inflation,” he wrote.  

JPMorgan maintained its underweight rating for Tesla but set a December 2023 price target of $153, up from $137. “We remain wary on valuation,” Brinkman wrote, and foresee downside of as much as 42% to the Tesla share-price target, with multiple compression one risk as competition rises and the distinction narrows between Tesla and traditional automobile manufacturers.

The analyst felt the AI Day event was short on positive catalysts.

Tesla showed off a prototype of its Optimus humanoid robot that walked onto the stage at the event in Palo Alto, Calif., before turning and waving to the audience. A next-generation version of Optimus had to be carried onto the stage.

“The first working versions of its humanoid Optimus robot struck us as only similar in capability as that achieved by Honda many years ago (with its ‘ASIMO’ robot) and far less capable than those shown more recently by Boston Dynamics (incidentally now majority-owned by Hyundai),” wrote Brinkman.

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Truist Securities Analyst William Stein was more positive on the Tesla event, citing “significant advances” in the company’s three major AI projects. The analyst noted that, at last year’s AI Day, Optimus was represented by a person on stage wearing a robot costume. “This year’s Optimus was a real robot (think Asimo),” he added. “While the live demo only showed the robot walking, waving, and dancing, a recorded demo showed the robot performing mundane tasks like lifting boxes and watering plants.”

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Tesla CEO Elon Musk, Stein noted, anticipated selling Optimus to consumers within three to five years.

The company also showed impressive advancements in hardware infrastructure, training datasets, and the types of models used to build up FSD features, according to Stein. “From a commercial perspective, TSLA noted that in the last year, the number of users has grown from only 2,000 to 160,000,” he wrote. “Further, the company plans to deliver a significant upgrade to FSD in about one month’s time, and it believes FSD could be delivered worldwide by the end of this year (though regulatory hurdles would prevent this).”

Stein also pointed to significant enhancements in the D1 chip for Dojo, the supercomputer’s training “tile” and the “accelerator” technology designed to make Dojo scalable. Truist, which has a buy rating on Tesla’s stock, raised its share-price target to $348 from $333.

Baird’s Kallo is also positive on the prospects for Dojo and FSD. “Dojo is intended to be used for improving the computing efficiency of analyzing video training from TSLA’s auto fleet, improving its FSD offering,” he wrote. “We believe this computing platform is a key differentiator for TSLA that could significantly improve its already industry-leading FSD.”

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The analyst also noted that the one of the main goals of Tesla’s AI Day is to attract talent to the company. “This is a critical piece of advancing its initiatives as the shortage of laborers in the market continues, specifically for highly trained engineers,” he wrote. “One of TSLA’s biggest advantages is its ability to recruit top-tier talent in a highly competitive market.”

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Of 42 analysts surveyed by FactSet, 27 have an overweight or buy rating on Tesla shares, with 11 rating the stock hold and four rating the stock underweight or sell.

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