Tesla (TSLA) reported its third-quarter earnings and revenue on Wednesday, and analysts and investors are tempering their expectations after the company announced lackluster Q3 deliveries earlier this month. Wall Street expects Tesla’s earnings per share (EPS) to drop 31% to 72 cents, the lowest in two years for CEO Elon Musk, while revenue is expected to increase 13% to $24.18 billion.
Analysts are also concerned about Tesla’s profit margins, which are expected to remain below its self-described “floor.” There are fears that there will be more surprise price cuts in the final months of 2023. However, Tesla bulls are already betting on a fourth-quarter rebound in deliveries, thanks to the revamped Model 3 in China and the expected Cybertruck delivery launch.
Morgan Stanley analyst Adam Jonas wrote in a research note that “expectations seem quite low on the quarter.” He added that the focus will be less on Q3 and more on 2024 volumes and Cybertruck execution. Wedbush analyst Dan Ives, a longtime Tesla bull, wrote that Wall Street will be “laser focused on the margin performance and overall outlook for 4Q.” He also predicted that the Cybertruck will start rolling out to customers around November or December.
Despite the lackluster Q3 deliveries, some analysts are optimistic about Tesla’s demand story. They believe that while the macroeconomic conditions are challenging, Tesla’s demand has stabilized at current price levels. However, Piper Sandler analyst Alexander Potter lowered his price target on Tesla to $290 from $300 and maintained an overweight rating on the shares. He also warned that Tesla’s stock may trade sideways in the coming months.
Tesla’s stock has been affected by the delivery miss in the third quarter. The company delivered 435,059 units, well below expectations and a 6% decrease compared to the second quarter. Analysts have been lowering their earnings predictions since then, and they may drop further before Wednesday. Tesla followed the delivery miss by cutting the prices of its US Model 3 and Model Y, which surprised Wall Street.
Tesla has aggressively cut vehicle prices throughout the year, which has dropped its auto gross profit margins. Analyst consensus expects auto gross profit margins to be around 18.2% in Q3, but some analysts predict it will be in the 16%-17% range. They will be listening for Musk to discuss the company’s philosophy around price cuts going forward, especially in the US and China.
Tesla’s stock currently resides below a buy point in a cup-with-handle base, and aggressive investors could use the October 10 high as an early entry. The company’s stock price target has been lowered by UBS and Jefferies recently, while Wells Fargo sees gross profit margins falling to 16.3% in Q3 and expects further weakness in Q4.
Analysts believe that the United Auto Workers strike against Ford, General Motors, and Stellantis is good news for Tesla, as it is a nonunion shop. This is an important conference call for Musk and the Tesla team to communicate the pricing/margin strategy and demand outlook for the fourth quarter.
Overall, the market will be closely watching Tesla’s earnings report, with a focus on the company’s profit margins and outlook for the fourth quarter. Tesla’s stock currently ranks fourth in the IBD Automaker industry group, with a high Composite Rating, Relative Strength Rating, and EPS Rating.