San Francisco Frontiers - Questions about Tesla spending binge ahead of earnings

When last releasing earnings in January, Elon Musk's highflying electric vehicle company announced plans to spend more than $20 billion on growth ventures such as autonomous driving, artificial intelligence and robotics.

Analysts are expected to scrutinize this plan on Tesla's conference call, particularly given the middling outlook for EVs after increased car sales boosted earnings a few years ago.

Musk has said the investments are needed to enable an "era of abundance," statements that have helped Tesla achieve market capitalization of around $1.5 trillion despite controversies tied to the billionaire over his far-right political activism and other matters.

Analysts at Morgan Stanley pointed out that Tesla was poised to pass 10 million miles driven on its "FSD" driver-assistance program.

"This symbolic milestone reinforces Tesla's autonomy lead, but with capex doubling and (free cash flow) turning negative, investors will need clearer evidence that unsupervised autonomy is around the corner to support the stock's valuation," said the Morgan Stanley report. It also noted that progress on Tesla's robotaxi rollout had slowed after the initial launch in Austin last year.

Although Musk's leadership at Tesla and his other companies has made him the world's richest person, he has regularly overstated the nearness of fully autonomous driving over the years.

CFRA Research analyst Garrett Nelson pointed to investor "heartburn" at Tesla's spending plans, questioning whether some of the ventures should be pared back in light of economic uncertainty tied to spiking oil prices.

"What worries investors is the fact that the company hasn't quantified the expected returns on these projects, raising concerns that Tesla is potentially acting recklessly," said Nelson, adding that more disclosure about investment return would reassure investors.

- Modestly higher auto sales -

Analysts have projected Tesla will report modestly higher profits on a 10.8 percent rise in revenues to $21.4 billion compared with the year-ago period, when sales were dented by criticism of Musk's White House work on behalf of US President Donald Trump.

Earlier this month, Tesla reported a 6.3 percent increase in first quarter auto deliveries to 358,023.

Wall Street analysts are deeply divided on the company, with JPMorgan Chase viewing Tesla as significantly overvalued.

An April 6 JPMorgan note criticized Tesla's hefty capital budget and pointed to a surplus in Tesla vehicle production in the first quarter compared with deliveries, "signifying a larger inventory build than in any prior quarter."

On the other side, Wedbush analyst Dan Ives has set a target price of $600 on Tesla shares, an increase of more than 55 percent from Tuesday's level.

Ives expects Wednesday's conference call to yield more clarity on the company's AI investments, as well as autonomous driving ventures such as FSD and the robotaxi.

"We believe the Street is at a crossroads with Tesla as the bulls and bears debate how quickly the AI era will take shape over the coming year," Ives said, adding that growth in FSD will "change the financial model/margins for Tesla looking ahead."

D.Robinson--SFF