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Tesla (TSLA) is expected to report results on its fiscal first quarter on Wednesday, April 19, with a conference call scheduled for 5:30 pm EDT. What to watch for:

WINDOW OPPORTUNITY: In a research note pre-earnings, Morgan Stanley says Tesla should be able to “eke out a decent 1Q result,” but defending that 20% clean auto gross margin 'floor' may be a different story as 'the world has changed' with respect to EV demand weakening relative to EV supply. A window of opportunity could open up to new Tesla investors, the firm adds. Despite entering this new phase of industry maturation, Morgan Stanley believes Tesla represents a better risk-adjusted investment opportunity compared to most other EV-related names. Further, the firm believes the company's cost and engineering leadership will, over time, provide greater growth potential and adjacent revenue opportunity vis-à-vis the competition. Morgan Stanley has an Overweight rating on the shares with a $220 price target.

PRICE CUTS: RBC Capital lowered the firm's price target on Tesla to $217 from $223, while keeping an Outperform rating on the shares ahead of the Q1 results. Tesla's price cuts announced in mid-January "should weigh" but there is some offset from continued operational efficiencies with the ramp at Austin and Berlin, and operational leverage from stronger sales sequentially, the firm tells investors in a research note. An ongoing price war in China is creating concern that Tesla will need to cut pricing again to remain competitive, says RBC, which expects the recent U.S. price cuts to draw additional questions around the demand outlook.

Meanwhile, Barclays said in a research note that Tesla is cutting prices for Model 3 and all Model Y variants in U.S. by 5%-6%. The firm believes continued price cuts "reinforce questions" of weak demand and is likely to pressure margin estimates for Tesla. The ability for the company to hold 20% gross margin is in question, according to Barclays. It keeps an Overweight rating on Tesla shares with a $230 price target.

KEY FOCUS ON MARGINS: Wedbush notes that with Tesla announcing solid Q1 deliveries of 423,000 that beat the Street in early April, the main focus of the Street heading into earnings on Wednesday is the margin structure of the business model post price cuts. With a series of price cuts implemented globally by Tesla across Model Y/3 and S/X in China, U.S., and Europe consumer demand has clearly been catalyzed for Tesla in the field at a time the EV arms race is heating up globally, the firm points out. Wedbush keeps an Outperform rating on the shares with a $225 price target.

DELIVERIES: Earlier this month, Tesla announced that in the first quarter, it produced 440,808 vehicles, 5% of which are subject to operating lease accounting, and delivered 422,875 vehicles. Tesla also said it produced 421,371 Model 3 and Y vehicles in Q1 and delivered 412,180. Additionally, the EV maker announced that it produced 19,437 Model S and X units in the quarter while delivering 10,695.

Commenting on the numbers, Barclays pointed out that inventory build continues, with 75,000 units of production over deliveries in last 3 quarters. Incremental price cuts likely needed amid inventory build, the firm says, especially as production at Austin/Berlin ramps. Focus shifts to gross margins, as some have questioned ability to clear target 20%, Barclays adds.

Bernstein also noted that Tesla's Q1 deliveries were largely in-line, with inventories growing 18,000 to 97,000 units, and are up more than 5-times versus a year ago, though remain relatively low. The firm continues to believe that Tesla will need to further lower prices this year and/or next year to achieve its volume targets, incrementally pressuring margins. Despite significant price cuts in January, lead times on all Tesla models except Model Y in the U.S. appear low, competition is increasing, and the U.S. Model 3 SR is likely to face an incremental headwind in Q2 as it becomes ineligible for IRA rebates. Bernstein doesn't expect a new low-cost model from Tesla to ship in volume before 2025.

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