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Tesla (TSLA) will release its Q3 earnings on Wednesday, Oct. 18 after the close of the markets. It’s been a good year for TSLA investors, and the stock has more than doubled, outperforming not only the Nasdaq Composite ($NASX) but also its electric vehicle (EV) peers.
Wall Street analysts expect Tesla’s revenues to rise 8.8% YoY to $26.4 billion in the third quarter. However, its per-share earnings are expected to dip by almost a third over the period.
Against this backdrop, both bulls and bears might like their chances as Tesla gets ready to release its Q3 earnings. Here are the 6 things I would watch in the Elon Musk-run company’s Q3 earnings report:
1. Commentary on Price Cuts and Margin Compression
Earlier this year, Tesla made its stance quite clear - it would prioritize delivery growth over margins. However, the price cuts have led to margin compression, and Tesla’s operating margins plummeted to 9.6% in Q2 2023. While that still rates among the highest in the industry, they are less than half of what they were at the peak.
During the Q3 earnings call, I would especially watch out for the progression in Tesla's margins, and any commentary that management provides about the outlook for price cuts and margins.
2. Tesla’s Advertising Plans
Tesla has largely refrained from advertising its vehicles, even after Musk said at the shareholder meeting in May that the company might try advertising its cars. But with Tesla’s deliveries falling short of expectations in all three quarters in 2023, the company might discuss its advertising plans during the Q3 earnings call.
Incidentally, Gary Black - who's the managing partner at The Future Fund LLC, a Tesla shareholder - also believes that it's time for Tesla to advertise its cars instead of cutting prices.
3. Delivery Guidance
Tesla has maintained its 2023 delivery guidance of 1.8 million vehicles. However, as we get towards the end of the year, it will be crucial to watch the guidance for 2024. Tesla expects its deliveries to grow at a CAGR of 50% over the long term, but the growth was below that threshold in 2022 - and going by the guidance, it looks set to fall short of 50% in 2023, also.
On a similar note, watching the commentary on Cybertruck production and delivery timelines should be worthwhile. The model is running behind schedule, and the commencement of deliveries here would help Tesla expand its target market and increase its shipments.
5. New Tesla Models and the Rumored Factory in India
Tesla has been touting a low-cost vehicle platform, but details about the ambitious plan are scarce. Markets will likely expect some commentary on the project during the Q3 earnings call.
Also, there are rumors of Tesla considering India as the next destination for its factory. The rumors are not without reason, given Musk’s admiration for Indian Prime Minister Narendra Modi, as well as the country’s emergence as a manufacturing destination. During the earnings call, Tesla might provide some color on its India plans.
4. Demand Environment in China
Earlier this year, Musk admitted to “constraints” on its “ability to expand in China.” While the country literally rolled out the red carpet for Tesla - even allowing it to set up operations without partnering with a Chinese automaker, as was previously the norm - relations between the two sides have grown complex over the last couple of years.
Meanwhile, even as Musk has denied that it faces any “demand issue” in China, its sales in the world’s biggest automotive market fell almost 11% YoY in September, even while overall new energy vehicle (NEV) sales rose 22.1% over the period.
During the earnings call, Tesla might talk about the demand situation in China, along with the competitive environment in the country.
6. Timeline for Autonomous Cars
During Tesla’s Q1 2023 earnings call, Musk said that Tesla should achieve full autonomy by the end of 2023 – a forecast he has made multiple times over the last several years. As we get to the tail end of 2023, it should be interesting to hear his views on the timeline for full autonomy for Tesla cars.
The importance of autonomous driving for Tesla cannot be overstated, and Musk has admitted that the company's mammoth valuation is linked to autonomy.
Cathie Wood – arguably the biggest Tesla stock bull – believes that the company is an artificial intelligence (AI) play, and sees the stock rising to $2,000 by 2027 in the base case and $2,500 in the bull case.
Her optimism revolves around Tesla’s autonomous driving business, which she believes accounts for two-thirds of the company’s value. Specifically, ARK Invest believes that Tesla could generate revenues of around $200 billion from robotaxis by 2027.
Meanwhile, Wall Street analysts have dialed back Tesla’s earnings estimates amid tepid deliveries and the brutal price war, which is taking a toll on not only Tesla’s margins but also its peers - many of which have had to lower prices to remain competitive. The upcoming earnings call should be an opportunity for Tesla to reassure markets that its long-term growth trajectory is still intact, despite the rapidly increasing competition.
On the date of publication, Mohit Oberoi 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.
