Tesla’s shares rose nearly 7% Thursday in premarket trading after Tesla announced a more than expected Q1 adjusted earnings and revenue.

What Did Tesla Do in Quarter 1?

To beat the $2.27 consensus, the Q1 adjustedEPS for the company was $3.22. This is an increase of 93c from the previous year. Revenue for the EV company was $18.76 Billion, an 81% increase YoY and higher than consensus estimates of $17.92 Billion.

Tesla’s free cash flow (FCF) in the quarter totaled $2.23 billion, compared to $293 million last year and a consensus projection of $671.8 million.

Importantly, the gross margin for automotive was at 32.9%. This is up from 26.5% in the previous quarter and above the analyst consensus estimate of 28.4%. Gross margin was 29.1% which is higher than the 25.8% expected.

Forward-looking commentary

Tesla announced that the company plans to expand its manufacturing capabilities immediately. Tesla expects that vehicle deliveries will grow by at least 50% each year, but it cautioned that there may be supply chain problems throughout the year.

According to the carmaker, its Texas gigafactory is expected to produce Model Y cars using structural packs of 4680 cells as well as non-structural packs of 2170 cells. This will be done later in this year. The company also said that the Industrialization of Tesla Cybertruck was progressing.

Musk’s Compensation

Tesla CEO Elon Musk achieved three key performance targets worth $23 billion with the most recent earnings report.

The carmaker’s strong revenue and EBITDA in the first quarter, along with robust reports from the previous three quarters, sees the company reach milestones that activate the vesting of 9th through 11th of 12 tranches of options awarded to Musk in his 2018 pay package.

Each tranche grants Musk the option to purchase 8.4 million Tesla shares at $70.01 apiece, marking a discount of as much as 90% from the stock’s closing price of $977.20 on Wednesday.

As a result, the three options that will vest following Tesla’s strong performance in the March quarter would provide Musk with compensation of roughly $23 billion.

This compensation is just days after Musk’s $43 billion offer to buy Twitter (NYSE:). Some analysts predicted that Musk could borrow billions of dollars against Tesla shares.

Tesla’s Q1 performance: Analyst Reflections

Goldman Sachs Analyst Mark Delaney reiterated the Buy rating on Tesla with a $1200 price target. The earnings report showed the value of Tesla’s model and price-cost leadership.

“While we expect input costs to rise this year (and in addition we estimate that the Giga Shanghai shutdown could represent a 50-100bps headwind to non-GAAP auto gross margin in 2Q), we think Tesla can largely offset this driven not only by higher pricing flowing through backlog but also due to improvements including with casting, internally developed 4680 cells, and ramping up the Austin and Berlin factories,” Delaney said.

Bank of America analyst John Murphy maintained his Neutral rating and a $1,300.00 per share price target after a “solid” performance.

“We have trepidation that TSLA stock may already be priced for perfection (or at least priced for hyperbolic growth), such that near-term earnings beats may be insufficient to get bulls incrementally positive on the stock. With this in mind, we reiterate our Neutral rating,” Murphy wrote to clients.

Finally, Citi analyst Itay Michaeli raised the price target on Tesla to $375.00 per share from $313.00 following an “impressive Q1.” The analyst is constructive on Tesla’s market-leading EV position but more skeptical of the company’s AV/FSD “architecture approach.”

“We think the current valuation remains challenging considering that the handful of other companies that previously achieved Tesla’s current market cap did so generating ~$100bln of gross profit (on avg.) vs. Tesla’s having just annualized ~$22bln in Q1 and as compared with our 2023E of ~$41bln. And while there’s little doubt that EV supply/demand broadly remains tight with EVs likely having also expanded the auto market, we need to be mindful that Tesla is adding sizable Model Y capacity in what are now price-points (>$60k U.S.) where the market-size is inherently smaller and where EV supply/demand might not prove as tight with other new entries ramping,” Michaeli said in a memo to clients.

Yesterday’s closing price of Tesla stock was $977.20

By Senad Karaahmetovic