Did Tesla Just Prove It Should Trade With A Tech Multiple?

Analysts have debated for years on whether to classify Tesla Inc TSLA as a car company or a technology company. Loup Ventures’ analyst and managing partner Gene Munster thinks the company’s second quarter proved it should be the latter.

What Happened: Automotive gross margins ex-credits were 25.8% in the second quarter, a record for Tesla. The improved margins came with average sale prices on Tesla vehicles down 2% year-over-year.

Street estimates called for Tesla’s margins to come in at 22.5% compared to 22% reported in the first quarter, Munster highlighted.

Tesla reiterated annual delivery growth targets of 50% on average, including over 50% in fiscal 2021. Munster sees the company’s deliveries growing 80% in the fiscal year compared to a Street estimate of 65%.

Related Link: Tesla Q2 Earnings Recap: 98% Revenue Growth To $11.96B, Semi Shifts To 2022, No Bitcoin Transactions

Why It’s Important: Munster said the margin improvement helps build the case that Tesla should trade with the higher multiple technology companies get versus the lower multiples reserved for legacy automotive companies.

“Improving auto margin is important because for Tesla to maintain its tech-like multiple, the company will have to expand auto margins in the 30% range,” Munster said.

The Loup Ventures managing partner points to a shift to electric vehicles, autonomy and renewable energy taking time but helping a company like Tesla in the end.

“In the end, we believe these segments will be the foundation of the future of transportation and energy consumption and will increase Tesla’s market cap over the long run.”

TSLA Price Action: Shares of Tesla are up 4.8% to $678.32 on Wednesday at publication.

Photo: Courtesy of Tesla