RBC Capital reiterates Tesla stock rating on strong margins By Investing.com

Tesla’s Q1 2026 auto gross margin excluding credits came in at 19.2%, well above the 15.1% consensus, while Full Self-Driving subscriptions rose 51% year over year to 1.28 million and price per vehicle increased 11.5% to $44,000. Management is expanding unsupervised FSD to Dallas and Houston, with several additional U.S. cities planned for 2026. Offsetting the positives, vehicle deliveries of 358,023 missed consensus and energy storage results were soft amid tariff-related concerns.

Analysis

The market is still pricing TSLA like a single-end-market auto story, but the real earnings leverage is shifting toward software attach and energy optionality. If FSD subscriptions keep compounding while unsupervised deployment widens city-by-city, the marginal value per installed vehicle rises faster than unit growth, which supports a higher multiple even if deliveries stay choppy. That said, the current setup is vulnerable to the classic “good quarter, bad stock” dynamic: strong margin optics can coexist with a weaker top-line trajectory, and that usually matters more once the market starts demanding evidence of sustained delivery acceleration.

The bigger second-order issue is competitive positioning in the U.S. EV market. A decline in California registrations implies Tesla’s pricing power and brand pull are not uniform geographically, and hybrids are likely absorbing incremental demand from cost-conscious buyers who want lower execution risk than a pure EV. If that pattern spreads, Tesla’s software narrative can coexist with slower fleet expansion, which limits the pace at which FSD monetization scales; the winner there may be competitors with less software upside but better near-term volume stability.

For the next 1-3 months, the key catalyst is whether the city rollout translates into measurable engagement and reduced intervention metrics; if not, the market will treat unsupervised expansion as marketing rather than monetization. Over 6-12 months, tariff exposure in energy storage is a genuine margin headwind and could offset some auto strength, particularly if storage growth lags and investors stop awarding the segment a venture-like multiple. The contrarian read is that consensus is overconfident on margin durability: the quarter showed operating leverage, but the stock likely needs evidence that margins are repeatable across a softer demand backdrop, not just a single favorable print.

Key Decisions for Investors

• Short-dated call spread: buy TSLA 1-2 month call spreads only after a post-earnings pullback; upside is capped but gives exposure to momentum if FSD/city rollout drives another sentiment leg, while limiting decay if delivery skepticism returns.
• Pair trade: long TSLA / short a basket of legacy automakers (F, GM) for 3-6 months if you want pure software optionality; if instead you think EV demand is slowing, invert it and short TSLA against an OEM basket because the market is overpaying for future monetization that is not yet visible in cash flow.
• Initiate a tactical hedge with TSLA puts 2-3 months out against any existing long; risk/reward improves if the stock rallies on headlines but fails to hold above prior highs once analysts start focusing on delivery softness and regional share loss.
• For energy storage exposure, avoid assuming a clean step-up in 2H26; if you own TSLA for storage upside, hedge with a short in a tariff-sensitive industrial/supply-chain name over the same horizon because policy friction can compress the segment’s contribution quickly.
• Monitor for a 30-45 day confirmation window on FSD monetization metrics; if subscription growth or deployment telemetry does not inflect, trim longs into strength, since the current multiple is vulnerable to any evidence that software uptake is lagging the narrative.