Tesla and the Perplexing Case of the Consensus

Tesla TSLA -5.08% beats delivery estimates due to strong demand. Hold on. Tesla missed delivery estimates after its dramatic price cuts in early January failed to attract buyers. The question is... which is it? In the long run, the answer doesn't matter all that much for Monday's trading.

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Wall Street's perspective

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It is a new quarterly record for Tesla (ticker: TSLA) to deliver 422,875 vehicles for the first quarter of 2023, up from 405,278 vehicles delivered in the fourth quarter. Did it exceed expectations?

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The answer depends on the source. Wall Street estimates can be found in a variety of sources, so investors can compare them to each other. Based on FactSet's estimates, 430,000 units were expected to be delivered during the first quarter of the year. Taking that into account, Tesla's first-quarter result seemed to be a "miss," and a miss could be a sign that something is seriously wrong with Tesla's operations. FactSet however pointed out that its number was based on only a handful of estimates, according to the financial data provider.

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According to FactSet, there are 47 analysts covering Tesla stock in total. The frequency with which analysts provide their predictions does not always match that of other analysts. Generally, the number of analysts tracking a stock through FactSet or other aggregation services is less than the number of analysts covering the stock as a whole. Consider the example of earnings, for instance. During the first quarter of 2019, FactSet compiled an average estimate of 86 cents a share for Tesla based on 28 analysts' predictions.

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There might be a problem with FactSet's sample size, as there might not be enough analysts included in it. It was estimated on Trade Algo that deliveries in the first quarter would be closer to 421,000 units than the consensus estimate. It is worth noting that this number is based on an average of 18 analysts.

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There are other sources that investors can use besides FactSet and Bloomberg. The Tesla compiled consensus is available on Tesla's website. It is estimated that there are 25 analysts in the group on average. The number of units delivered in the first quarter of the year came to about 421,000 units.

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Even though some investors might be hesitant to take numbers from a company, it is at least consistent and transparent in its numbers. It has listed all the brokers that it averages: Baird, Barclays, Bernstein, BofA, Canaccord, Citibank, Cowen, Daiwa, Deutsche Bank, Evercore, Goldman Sachs, Guggenheim, Jefferies, JPMorgan, Mizuho, Morgan Stanley, New Street Research, Oppenheimer, Piper Sandler, RBC, Truist, Tudor, UBS, Wedbush, and Wolfe.

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Among those ratings, there are 15 Buy ratings, six Hold ratings, and four Sell ratings to choose from. Therefore, the Buy-Rating ratio is 15 over 25, which is 60 percent. This is a higher ratio than all 47 analysts tracked by FactSet's Buy-rating technology, who have an average of 53% buy ratings. The average buy-rating ratio for a stock in the S&P 500 is about 58%, while the average sell-rating ratio is about 43%.

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There is a possibility that having more bullish analysts will push down the consensus number. The bulls like it when companies are able to beat their numbers. There is a possibility that you could set a bar that is low to jump over. That's a bit of a stretch. Accuracy is important to analysts, as well as to their clients.

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Based on Bloomberg and Tesla estimates, first-quarter deliveries were a "beat." Maybe that indicates that Tesla's price cuts are working and EV demand continues to be strong.

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There is a need for investors to be cautious about building narratives around one data point at a time. Overall, the first-quarter delivery numbers look fine from the perspective of the company. On the basis of all the numbers published and all the research that we have seen recently, that is Barron's view based on all the numbers published.

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While we're interested in the consensus confusion, it's not all that important from our point of view. It will be up to the market to decide what will happen to Tesla stock in the short term and in the long term. It's possible that Monday's share price will be weak. Tesla has been making big moves over the past few months and a lot of those moves have raised the stakes for any stock.

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The stock rose 6.2% on Friday, compared with a rise of 1.4% and 1.7% for both the S&P 500SPX +0.25% and the Nasdaq CompositeCOMP –0.45%, respectively. Aside from that, Tesla shares rose 68% in the first quarter of this year.

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During pre-market trading on Monday, Tesla's stock was down 1.4% at $204.49 per share, down from $204.55 on Friday. Futures on the S&P 500DJIA +0.98% fell 0.1%, while futures on the Dow Jones Industrial AverageDJIA +0.98% rose 0.3%.