Tesla will report third-quarter earnings on Wednesday evening. There will be a lot for observers to digest, but they should focus on pricing, profit margins, and products.
For the headline numbers, Wall Street is looking for earnings per share of about 72 cents on sales of $24.2 billion, according to FactSet. Tesla (ticker: TSLA) reported earnings per share of 91 cents on sales of $24.9 billion in the second quarter. Tesla reported earnings per share of $1.05 on sales of $21.5 billion in the third quarter of 2022.
One reason for the falling sales between the second and third quarters is lower car sales. Tesla delivered some 435,000 units in the third quarter, compared with Wall Street projections for about 455,000, and down from about 466,000 in the second quarter of 2023. Investors had known a weaker number was coming because of planned factory downtime to upgrade equipment and launch refreshed versions of the Model 3 sedan. Tesla delivered 343,830 units in the third quarter of 2022.
The delivery number hasn't hurt the stock much. Coming into Tuesday trading, since Tesla reported third-quarter deliveries, shares are up 1.5%, while the Nasdaq Composite had gained 2.6%.
Guidance should be a focus point. Tesla expects to deliver about 1.8 million units in 2023, leaving roughly 475,000 to deliver in the fourth quarter. Wall Street is expecting some 480,000 units to be delivered.
Deliveries are higher but earnings are lower as of late because of pricing. The price for a Tesla long-range Model Y is down roughly 25% year over year. The price for a long-range Model 3 is down roughly 20%. Tesla reported a second-quarter automotive gross-profit margin, excluding the benefit of regulatory credits, of about 18%, down from 26% in the second quarter of 2022.
Margins are expected to range from 17% to 18% in the third quarter. Wells Fargo analyst Colin Langan is a little more bearish, projecting about 16%. He rates Tesla stock at Hold with a $260 price target.
Those margin numbers are lower than a previous Tesla goal to keep automotive gross profit margins above 20%. Tesla chose volume growth over profit margin in 2023, amid rising interest rates and a slowing economy. The average interest rate to finance a new car in the U.S. is at about 7.4%, up about 1.5 percentage points year over year. Higher rates, of course, raise monthly car payments.
The pricing strategy, to some extent, has worked. Tesla delivered about 1.3 million units in the first three quarters of 2023, up about 47% year over year. In China, Tesla shipped about 700,000 units from its plant in Shanghai in the first nine months of 2023, up about 45% year over year.
China is the world's largest market for battery-electric vehicles.
Investors have been pleased with the volume growth. Coming into Tuesday trading, Tesla stock is up about 106% year to date, while the S&P 500 is up about 14%. Still, investors will want to know when price cuts will stop and margins will bottom out. Wedbush analyst Dan Ives believes margins will bottom in the third quarter. He rates Telas stock at Buy with a $350 price target.
One way Tesla margins can bottom is to end price cuts. Another is new products. Tesla is due to start delivering the Cybertruck any day now. The more expensive versions should be delivered first. The pace of production and deliveries will be closely watched by investors.
Automotive gross-profit margins might be the thing investors focus most on, and they'll also focus on growth in Tesla's stationary storage business and updates about its Full Self Driving driver assistance software, which is designed to work for a human at the wheel who is still paying attention to the road.
Tesla deployed 3.6 gigawatt-hours of battery storage in the second quarter, up from 1.1 gigawatt-hours in the second quarter of 2022. Tesla recently cut the price of its FSD software to $12,000 from $15,000, and how that impacted FSD takeup by drivers isn't known yet.
There is always a lot going on at Tesla, and investors as always should brace for volatility. Options markets imply the stock will move about 6%, up or down, following earnings. Tesla stock has moved an average of about 9% following the past four quarterly reports. The stock has dropped three times and risen once.
Comments