Margins In Focus As Tesla Reports Q1 Earnings

Tesla (NASDAQ:TSLA) is expected to publish its Q1 2023 earnings on April 19, reporting on a quarter that saw the company report a record number of deliveries. We expect Tesla’s revenues to come in at $23.54 billion, roughly in line with consensus estimates. This would mark year-over-year growth of about 24% although it would mark a slight sequential decline. Earnings are likely to come in at about $0.87 per share, roughly in line with the consensus. 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 reported delivery numbers for Q1 2023 earlier this month, indicating that unit sales grew by about 36% year-over-year to 422,875 cars after it slashed prices on its most popular vehicles.  However, investors were expecting better. For perspective, despite the sizable price cuts (almost 20% on some models), Tesla’s deliveries grew by under 5% versus the December quarter. Moreover, year-over-year growth rates were also well below the 50% long-term compound growth rates that the company is targeting.  While higher volumes are positive, Tesla’s average selling prices are likely to trend meaningfully lower in Q1 and margins are likely to face pressure. For perspective, automotive gross margins stood at nearly 33% in Q1 2022, and the number could likely fall below 25% in Q1 2023. That said, Tesla could offset some of the impacts of the price cuts, via better economies of scale and easing supply chain issues.

Overall, we remain positive on Tesla stock despite the slower-than-expected sales and potential margin pressures. There are a couple of factors that could help Tesla in the near term. Firstly, Tesla is likely to bolster its aging model lineup. The Cybertruck pickup truck is likely to go into production this year, while deliveries of the semi-truck recently started. At the current market price of $186 per share, Tesla trades at just over 34x consensus 2024 earnings, which we believe is reasonable versus historical levels. The transition of the auto market toward EVs could gather pace, with the Biden administration recently proposing more stringent emissions norms that would require that EVs account for as many as two out of three new vehicles sold in the United States by 2032. We continue to believe that Tesla will remain a big beneficiary of the EV pivot,  given its well-oiled supply chain, superior electric drivetrains, and its lead with software and self-driving technology. We value Tesla stock at $221 per share, which is about 19% ahead of the current market price. 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 4/14/2023
[2] Cumulative total returns since the end of 2016