Can Tesla Recover From Headwinds?

Shares of Tesla (TSLA) are down more than -9% today at a 2-month low after reporting Q3 earnings results late Wednesday that missed already-reduced consensus estimates for profit, sales, and margins.  Tesla reported Q3 EPS of 66 cents, below the consensus of 74 cents, with gross margins of 17.9%, slightly weaker than the consensus of 18%.  After the earnings results were released, several analysts cut their price targets on Tesla, and Fubon Securities downgraded the stock to neutral from buy. More analyst cuts seem likely in the few days.

Tesla also reported Q3 revenue rose to $23.5 billion, weaker than the consensus of $24.06 billion.  In addition, automotive gross margins, excluding regulatory credits, slumped to 16.3% in Q3, the lowest in over four years and below the consensus of 17.7%.  Tesla delivered 435,059 vehicles globally in Q3, below expectations of 456,722 and its first quarterly decline in a year.  The company has repeatedly slashed car prices this year, as CEO Musk said he’s willing to sacrifice profits to boost sales. 

Tesla’s profit margins have consistently fallen after months of persistent price cuts to its vehicles designed to spark consumer demand.  Tesla CEO Musk is also dialing back expectations for Tesla due to an unpredictable economic environment.  CEO Musk said that ever-rising interest rates and multiple wars are undercutting consumer sentiment and purchasing power.  Musk also said that ramping up production of its new Cybertruck is a challenge on par with the “production hell” the company endured in past vehicle startups.

The first Cybertrucks made by Tesla are expected to be delivered to customers on November 30, about two years behind schedule.  Musk warned that it may be another 18 months until the company reaches volume production and generates significant cash flow from its new electric pickup.  Musk said, “We dug our own grave with Cybertruck.  Special products that come along only once in a long while are just incredibly difficult to bring to market, to reach volume, to be prosperous.”

Despite the headwinds, Tesla assured investors that it is on track to make and deliver about 1.8 million vehicles this year.  Also, the company remains optimistic sales will increase as its recent price cuts have put the prices of its top-selling vehicles on par with gasoline-powered cars. At $38,990, Tesla’s base Model 3 sedan now costs $8,700 less than the average amount paid for a car or truck in the U.S.  Some analysts believe Tesla’s stock may not fall much further as the company still expects to reach its full-year estimates.  Morningstar Research Services LLC said, “The stock is not moving too much because management reiterated their 1.8 million vehicle guidance for the year.”

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.