Tesla Inc. is slated to report third-quarter earnings on Wednesday amid renewed concerns about the EV maker’s margins and demand after a fresh round of price cuts.
Sentiment toward Tesla
earnings for the remainder of the year “skews cautious,” and there’s risk earnings could be revised lower, Morgan Stanley analyst Adam Jonas said in a note Thursday.
Moreover, many investors “are wondering if Tesla can grow earnings at all” in the next year, with the year ahead seen as “volatile,” said Jonas, who added he recently hosted a group of Tesla investors to discuss their expectations for the company.
There was also “very little enthusiasm” about Tesla’s next model, the Cybertruck, among the investors, Jonas said.
“Teething issues” with the unconventionally styled electric pickup truck are “seen as perpetuating Tesla’s relatively stale model lineup,” with its only recourse being price cuts.
Analysts polled by FactSet expect Tesla to report adjusted earnings of 73 cents a share on sales of $24.3 billion. That would compare with adjusted earnings of $1.05 a share on sales of $21.5 billion, which Tesla reported in the third quarter of 2022.
The price cuts, the latest of which were announced earlier this month, rehashed investors’ worry about the company’s margins.
Tesla’s third-quarter earnings report is “all about margins,” Gene Munster of Deepwater Asset Management said in a recent note.
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Operational margins are at the heart of a key investment debate surrounding Tesla, and whether it is a car company or a tech company, Munster said.
Even more importantly, however, Tesla’s gross margins on vehicles have been falling for the past three quarters, to 18.1% in the June quarter from 24.3% in the December quarter, which is tied to the price cuts.
Gross margins are likely to drop again in the third quarter, but are likely to recover in the fourth quarter, Munster said.
Joseph Spak at UBS recently reduced his profit expectations for Tesla for the next couple of years, seeing “downside risk” to the estimates. “We forecast … a moderate EPS miss at [Tesla],” he said
Tesla earlier this month reported third-quarter deliveries, its proxy for sales, that were below expectations.
Given the “more limited [third-quarter] de-stocking, recent U.S. price cuts and the current valuation,” reaction to Tesla’s third-quarter earnings are likely to be similar to “neutral to slightly negative” reaction to the company’s second-quarter results, Citi analyst Itay Michaeli said.
Tesla shares have gained 114% so far this year, compared with gains of around 14% for the S&P 500 index