Tesla Is Set For A Record Q3. What Does This Mean For The Stock?

Tesla (NASDAQ:TSLA) is expected to publish its Q3 2022 earnings on October 19, reporting on a quarter that saw deliveries soar to record highs. We expect Tesla’s revenues to come in at all-time quarterly highs of $22.3 billion, rising by about 62% versus last year and by about 32% sequentially. Earnings are likely to come in at about $1.03 per share, up from about $0.76 in Q2 and about $0.62 in the year-ago quarter. See our interactive dashboard analysis on  Tesla Earnings Preview for more details on how Tesla’s revenues and earnings are likely to trend for the quarter. So what are some of the trends that are likely to drive Tesla’s results? 

Tesla said that it had delivered 343,830 vehicles for the quarter that ended in September, marking a growth of about 42% year-over-year and a sequential increase of about 35%. While deliveries over Q2 were weighed down by the suspension of production at the company’s Shanghai factory amid Covid-19 restrictions in China, Tesla’s production has picked up, driven by the recovery in China, a gradual ramp-up of production at the new facilities in Texas and Berlin, and increasing productivity at Fremont, which is Tesla’s first plant. Now although the Q3 delivery numbers were actually below Street estimates, we believe that Tesla could see stronger price realizations and margins for the quarter.

Over Q2 2022, average prices for Tesla vehicles rose by about 14% year-over-year and we could see an even bigger increase for Q3, as the company continues to prioritize higher variants of its vehicles in a supply-constrained environment. Additionally, in June, Tesla raised prices on its most popular Model Y by about $3,000, with the more premium Model X and S seeing bigger hikes.

Margins could also see a recovery. While Tesla’s automotive margins dropped from 32.9% in Q1 to 27.9% in Q2 2022, due to the production headwinds in China and investments in ramping up production at its new plants in Germany and Texas, we believe that they could recover once again in Q3, driven by better economies of scale and rising average selling prices, although this could be partly offset by higher material costs.

While Tesla stock has witnessed some headwinds recently falling by about 16% over the past month, we remain optimistic about the company’s prospects. We value Tesla stock at about $341 per share, which is almost 40% ahead of the current market price. Despite the weaker-than-anticipated quarterly delivery numbers, Tesla should pick up the slack as it scales up production at its new factories. Demand also does not appear to be an issue for the company, with CEO Elon Musk indicating that Tesla is constrained by production and not demand. For perspective, delivery timelines for the Model Y SUV stretch to as long as six months. Moreover, Tesla’s margins are also among the highest in the auto industry and this should enable the company to be solidly profitable as sales rise further. See our analysis on Tesla Valuation: Is TSLA Stock Expensive Or Cheap? for more details on Tesla’s valuation and how it compares with peers. For more information on Tesla’s business model and revenue trends, check out our dashboard on Tesla Revenue: How TSLA Makes Money.

[1] Month-to-date and year-to-date as of 10/7/2022
[2] Cumulative total returns since the end of 2016