Wall Street Experts Say Tesla's Huge Profit Margin 'Unsustainable'

Tesla's eye-popping profit margin has raised doubts among Wall Street analysts how the firm would be able to keep at it amid rising commodity costs and higher expenses to increase production, Akash Sriram reported for Reuters.

Photo Insert: The celebration of the first Giga Texas deliveries

The world's most valuable automaker pocketed a hefty 32.9% margin, more than double that of legacy firms including General Motors, Ford Motor and Stellantis, all of which have been spending heavily for a share of the lucrative electric vehicle (EV) market.

Tesla's record margin that came on the back of higher prices is powering a nearly 9% rise in Tesla's stock price on Thursday and has led at least five analysts to raise their price target, but with a warning.

Margin could come under pressure in the coming months as the spending on ramp-up at the plants in Berlin and Texas gradually becomes a part of cost of production and moves out of research and development (R&D) expenses, they said.

"While the margins are impressive, some fear that they might be at their peak," said Julie Gillespie, head of market research at TipRanks.

Rising commodity costs too could eat into margins even though Tesla's price increases are designed to offset higher anticipated costs in the next six to 12 months.

The recent price hikes are for orders that are likely to be delivered a year later in some cases and could incur higher production costs, potentially squeezing the margins. For Tesla, this implies production rampup would play a crucial role.

"Its margins ultimately depend on how many cars rattle through the production line," Laura Hoy, analyst at Hargreaves Lansdown said. Still, many investors remain bullish on the company's prospects after Chief Executive Elon Musk bragged that Tesla would be able to achieve 60% volume growth this year, up from 50% predicted in the fourth-quarter earnings call.

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