Tesla Inc. is scheduled to report first-quarter earnings after the bell next Wednesday, with investors focusing on the impact of another volley of price cuts on margins and any color around demand for the company’s EVs.
Tesla is scheduled to report its first quarter (Q1) earnings on Wednesday, April 19 after markets close. What investors are most concerned about is how the price cuts affected Tesla earnings and gross margins.
Tesla's Q1 revenue is expected to be $23.489 billion, with an adjusted net profit of $3.057 billion and an adjusted EPS of $0.864, according to Bloomberg's consensus expectation.
Previous quarter review
Tesla reported record Q4 2022 revenue, beating on both earnings and revenue. Here are the results.
Earnings (adjusted): $1.19 vs $1.13 per share expected, per Refinitiv
Revenue: $24.32 billion vs $24.16 billion expected, per Refinitiv
Tesla reported automotive revenue of $21.3 billion in the fourth quarter, representing 33% growth year-over-year. $467 million of that came from regulatory credits in the fourth quarter of 2022, up by nearly half from the prior year in the same period.
Automotive gross margins came in at 25.9%, the lowest figure in the last five quarters. Operating cash flow was down 29% from last year, and down 36% from last quarter, coming in at $3.28 billion.
What to expect on Q1
Tesla Q1 margin under radar following price cuts
Tesla delivered a record 423,000 vehicles globally in 1Q, 36% year-over-year growth,helped by aggressive price cuts aimed at boosting demand and maintaining 50% average volumegains but putting gross profi t at risk. The surge failed to halt a rise in inventory. Consensus calls for1.8 million vehicles sold in 2023, not exceeding 3 million until 2026, an average growth rate of 20% --while the company targets 50%. Tesla's EV market share in the US peaked at 86% in 3Q18, slipping to57% in 4Q, as legacy manufacturers ramp up EV production, luring consumers from Tesla's limitedportfolio.
Tesla's decision to slash prices in numerous markets runs counter broader industry trends, with USaverage selling prices above $48,200 in March, up $3,100 in a year, and other automakers keen onmaintaining prices high and margins wide.
Now, with first-quarter deliveries completed, the next question is how the price cuts affected Tesla earnings and gross margins.
Biden administration announces sweeping car emissions proposal
The U.S. Environmental Protection Agency unveiled a set of rules designed to boost EV adoption and ensure that all-electric options make up as many as two out of every three new passenger vehicles sold in the U.S. by 2032.
Tesla will benefit the most from stricter requirements on internal-combustion engine vehicles due to its scale and U.S. manufacturing capabilities, Ben Kallo at Baird wrote in a recent note.
Moreover, despite the recent cuts, Tesla “will be able to maintain industry leading operating margins and is in the best position among auto peers to weather economic headwinds,” Kallo said.
In addition, after the report on Wednesday, Tesla is scheduled to host a question-and-answer webcast at 5:30 p.m. Eastern time to discuss the company’s earnings and outlook.
Analyst opinion
Tesla price cuts place greater emphasis on Q1 margins, says Citi
Citi analyst Itay Michaeli says Tesla's U.S. price cuts over the 2%-5% didn't come as a major surprise but will place an even greater emphasis on the Q1 auto gross margin outcome as a determinant of near-term sentiment. A stronger than expected gross margin outcome in Q1 would support the contention that Tesla's latest price cuts are coming from a position of cost strength while also possibly reflecting lower input costs, the analyst tells investors in a research note. However, an in-line to softer gross margin outcome could revive concerns over capacity and product aging while placing 2023 consensus estimates at risk, says the firm. At 46-times 2023 consensus earnings estimates, Citi does not this outcome is currently priced into the shares, making for a "less than compelling" risk/reward profile. It keeps a Neutral rating on Tesla. Citi sees a "limited read" to General Motors (GM) and Ford (F) from Tesla's price cuts given conquest, regional and segment considerations.
Tesla able to maintain industry lead despite price cuts, says Baird
Baird said Tesla's US price cuts continue to make headlines with Tesla margins and macro uncertainty in focus. Despite this second round of US price cuts in a short time frame, we continue to believe Tesla will be able to maintain industry leading operating margins and is in the best position among auto peers to weather economic headwinds. Baird maintains its Outperform rating and $252 price target on Tesla shares.
Tesla likely to make more price cuts in other geographies, says Bernstein
Bernstein says that Tesla further reduced prices on all its U.S. vehicles by up to 5%. While the price cuts were not a surprise, the timing and details were "somewhat surprising," the analyst tells investors in a research note, adding that additional price cuts in other geographies are "likely." The price cuts reflect Tesla's need to stimulate demand and are an explicit trade off of margins for volume, the firm says. It keeps an Underperform rating and $150 price target on the shares.
Tesla price cuts may raise demand questions, says Wolfe Research
Wolfe Research analyst Rod Lache says Tesla lowered prices of the Model 3 by $1,000, Model Y by $2,000, and the S and X by $5,000. Notably, these announcements came after Tesla confirmed that U.S. consumers will remain eligible for $7,500 U.S. government purchase credits for most of the Model 3/Y lineup, the analyst tells investors in a research note. While the price cuts in the U.S. may raise questions about vehicle demand, there is "significant cost reduction ahead" for Tesla, the analyst tells investors in a research note. The firm says new investments in Tesla Energy are likely underappreciated by investors. It keeps a Peer Perform rating on the shares, saying it wouldn't be surprised to see a negative short-term reaction in the shares to the news of price cuts.
Tesla shares have gained over 46% YTD but are down 65% over the past year. The results of the first quarter may become a catalyst for Tesla.
