'Remain highly cautious': Here's what 3 Wall Street analysts expect when Tesla reports 4th-quarter earnings

• Tesla is set to report fourth-quarter earnings on Wednesday, and its high-flying stock has investors hoping for stellar figures.
• Fourth-quarter deliveries already exceeded estimates, and analysts are looking for the automaker to guide for a leap in sales for 2021.
• Here's what three Wall Street analysts expect from the company's fourth-quarter earnings report.
• Watch Tesla trade live here.

Tesla is scheduled to report fourth-quarter earnings after the market closes on Wednesday. Even the smallest of misses could weigh on the company's extreme valuation.

The automaker's shares surged in 2020 as steady profitability, retail-investor demand, and encouraging analyst upgrades boosted bullishness. The stock notched a 743% return through the year and a 64% gain in the fourth quarter alone.

Tesla now trades with a trailing price-to-earnings ratio of more than 1,600x, making it among the most highly valued stocks in the world. Shares closed at a record-high $880.80 on Monday.

To be sure, quarterly deliveries already beat Wall Street's expectations. Tesla said earlier this month it delivered 180,570 of its electric vehicles last quarter, bringing its full-year total to 499,550. CEO Elon Musk previously set a 2020 target of 500,000 deliveries, and analysts largely praised the company for nearly hitting the lofty goal.

Here's what analysts expect from the company's fourth-quarter report, from 2021 delivery guidance to possible model overhauls.

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JPMorgan: 'Remain highly cautious on valuation'

While 2020 saw many analysts come around on Tesla and reverse their bearish outlooks, JPMorgan remains skeptical. Better-than-expected deliveries prompted the bank to lift its 2021 and 2022 profit estimates slightly, though the firm kept its fourth-quarter estimate unchanged.

Despite the stock's overwhelmingly bullish trend, investors should "remain highly cautious on valuation," the bank said in a Friday note. JPMorgan's recently lifted price target of $125 implies a roughly 85% plunge over the next 12 months.

Taking 2023 estimates into account lifts the bank's target slightly, but elements of the model that weigh discounted cash flow still suggest shares are flying too close to the sun.

"While still suggestive to the downside, we do not regard our price target as ungenerous as it actually values Tesla as the world's second-largest automaker by market cap," the bank's analysts said.

JPMorgan holds an "underperform" rating on Tesla shares.

Wedbush: China is 'hearts and lungs' of the bull thesis

Analyst Dan Ives holds a considerably more bullish view, though still sees shares as nearing unsustainable levels. Strong delivery numbers and tax-credit tailwinds should drive "a relative blowout" for quarterly earnings, so investors should instead focus on Tesla's 2021 demand forecasts, Ives said.

Tesla's expansion in China will be of particular importance. Demand for electric vehicles in the country skyrocketed through the pandemic, and Tesla's Shanghai plant stands to extend its lead against a bevy of Chinese competitors.

China's growing EV market can account for up to 40% of all deliveries by 2022 and serves as the "hearts and lungs" of the Tesla bull thesis, Ives said.

"The China growth story is worth at least $100 per share in a bull case to Tesla as this EV penetration is set to ramp significantly over the next 12 to 18 months," he added.

The analyst expects Tesla to guide for 750,000 deliveries in 2021, buoyed mainly by strong Model 3 demand and greater penetration of the Chinese market. Looking beyond the Wednesday report, expectations for EV-friendly policies from the Biden administration can further boost the sector, according to Wedbush.

Wedbush maintains a "neutral" rating on Tesla shares with a price target of $950.

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UBS: 'Expect Tesla's best-ever quarter'

Tesla's fourth-quarter deliveries should yield hefty profits, but 2021 guidance could put a damper on the stock, UBS analysts said Tuesday.

The bank projects Tesla will post its "best-ever quarter" with EBIT earnings totaling $1.3 billion. Free cash flow should reach $1 billion but can skew to the upside depending on the automaker's working capital through the period, the team added.

Current-year deliveries present a higher bar to clear. UBS sees Tesla guiding for at least 800,000 deliveries in 2021, adding that the threshold is likely the minimum expected on Wall Street. Model Y production in China will be the main driver for sales growth, while volume out of the automaker's Berlin and Austin factories will likely be limited, according to the bank.

These limitations will make it "difficult" for Tesla to surprise to the upside this year, the analysts said. Updated Model S and Model X vehicles could improve the overall mix and drive "a strong positive impact on pricing and margins," they added.

UBS holds a "neutral" rating on Tesla with a price target of $325.

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