One Wall Street analyst thinks Tesla shares can rise to $258. After the post-earnings drop, is it a good time to buy?

Teslaof (TSLA -0.20%) The highly anticipated second-quarter earnings report came as a shock to investors and some analysts after the leading electric vehicle (EV) maker surprised with 444,000 vehicle deliveries in the three-month period, leading investors to expect subsequent earnings results to be bigger surprises than expected.

However, profit margins continued to decline due to increased competition and price cuts. Citigroup Analyst Itai Michaeli lowered his price target on Tesla shares to $258 per share from $274, but that would still be a nearly 20% upside after Tesla’s shares fell following the company’s quarterly earnings report.

The drop comes after shares surged over the past month as investors anticipated stronger earnings reports, but the post-earnings reaction has sent Tesla shares into negative territory this year.

Tesla is still generating cash

Tesla’s report was very mixed. Auto margins continue to trend downward, but the company still generated $1.3 billion in free cash flow after capital expenditures. However, auto margins excluding regulatory credit income fell to 14.6%, down from 18.2% a year ago and 25.1% two years ago.

That’s the main reason Michaeli isn’t happy with the results, but like many other Tesla investors, he’s keeping his eye on potential catalysts ahead, such as new lower-cost models and self-driving robotaxis.

As Tesla CEO Elon Musk himself stated, investors who don’t believe the company can execute on its fully self-driving car plans shouldn’t own the company’s stock. The company’s second quarter report reinforced that belief. The company’s car sales and profits do not justify Tesla’s stock valuation. Potential catalysts for value include lower-priced EV models, its energy business having its best quarter ever, and a fleet of fully self-driving cars. Investors who believe these catalysts will not pan out should look elsewhere.