Will Weak Earnings Follow Tesla’s Mixed Delivery Report?

TSLA: Tesla logo

Tesla (NASDAQ:TSLA) is expected to publish its Q3 2023 earnings on October 18, reporting on a quarter that saw the company’s deliveries take a hit due to planned factory shutdowns which reduced production. We expect Tesla’s revenues to come in at $24.3 billion, slightly ahead of consensus estimates and about 11% ahead of last year. Earnings are likely to come in at about $0.78 per share, slightly ahead of the consensus and a decline of about 25% versus last year. 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?

We note that TSLA stock has had a Sharpe Ratio of 0.9 since early 2017, which is better than 0.5 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Tesla delivered a total of 435,059 vehicles in Q3, down about 7% sequentially, although this was about 26% higher compared to last year. For perspective, Tesla scaled back on production at its Austin, Texas factory as it preps to manufacture the Cybertruck. The company held back on production in China as it worked to launch an upgraded version of its Model 3 sedan. While Tesla expects to pick up the slack in the fourth quarter, as it reiterated its target of delivering 1.8 million vehicles this year, Q3 revenues will be impacted. Separately, Tesla has also reduced the pricing of its vehicles in the U.S. and China over the last few quarters and this is likely to impact average pricing and margins. For example, the Model Y presently sells at more than 20% below last year’s prices. Over Q2 average prices for Tesla vehicles stood at $45,600 down from about $57,000 in Q2 2022. Automotive gross margins over Q2 2023 stood at 19%, compared to almost 28% in the year-ago quarter and we should see a similar year-over-year decline over Q3 as well.

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We currently remain relatively neutral on Tesla stock, with a $263 price estimate, which is 2% ahead of the current market price. We continue to believe that Tesla will remain a big beneficiary of the long-term transition to cleaner transportation and energy generation, with the company benefiting from its well-oiled supply chain, superior battery and drive train tech, and its lead with software and self-driving technology. However, Tesla stock presently trades at over 70x forward consensus earnings, which could limit near-term upside. Competition is also mounting and Tesla’s price cuts in the United States as well as China are impacting margins. Tesla’s earnings for 2023 are projected to decline year-over-year.  See our analysis on Tesla ValuationIs 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 RevenueHow Does TSLA Make Money?

 Returns Oct 2023
MTD [1]
YTD [1]
Total [2]
 TSLA Return 4% 112% 1729%
 S&P 500 Return 0% 12% 92%
 Trefis Reinforced Value Portfolio -2% 21% 522%

[1] Month-to-date and year-to-date as of 10/7/2023
[2] Cumulative total returns since the end of 2016

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