Good morning.
As earnings season continues, Elon Musk’s Tesla will be up to bat today to report Q3 results, and the new CFO will be in the spotlight.
"Investors aren’t really embracing this quarter because of the softer delivery number," Dan Ives, managing director and senior equity analyst at Wedbush Securities, tells me. Tesla's third-quarter delivery numbers came in below Wall Street’s targets with the longer than expected downtimes of factories in Shanghai and Austin, Ives wrote in a Monday note to investors.
There’s a "laser focus" on auto gross margin being above 17%, Ives says. “And investors want to know if the price cuts are mostly now in the rearview mirror," he says.
Amid an uncertain economy, increased EV competition, and rising production, Tesla has undergone several rounds of price reductions this year. Its top-selling electric vehicles now compete directly with gasoline cars on price. Earlier this month, the EV company marked down the starting price of the base Model 3 by $1,250 to $38,990, and discounted the long-range version of the sedan by the same amount to $45,990, Bloomberg reported.
“The margin sacrifice over volume has been the right move,” Ives says. However, "they need to start to go back in the other direction," he says. If not, it will become, “a premium brand that continues to cut prices,” Ives says. “That’s a difficult perception to get over for the consumer.”
Tesla’s most recent C-suite change happened in August when Zachary Kirkhorn stepped down as CFO. “Zach has been a key part of the Tesla story for years,” Ives says.
Kirkhorn joined Tesla in March 2010 as a senior analyst in finance and was promoted to finance chief in 2019. At the time, Tesla was valued at $50 billion, and today, it’s worth about $773 billion, Fortune reported. Before Kirkhorn took on the CFO role, Tesla had a long history of losses and occasionally burned more than $1 billion of cash per quarter, but during his tenure the company experienced profitability.
Vaibhav Taneja succeeded Kirkhorn as CFO in August. Taneja previously served as Tesla’s chief accounting officer since March 2019. Before that, he was corporate controller and assistant corporate controller. Prior to joining Tesla, Taneja served in various finance and accounting roles at SolarCity Corporation.
What does Ives think Taneja should prioritize?
“I think he has to show that he has his arms around the margin story, price cuts, and the forecast going forward,” Ives says. “Because with Zack no longer running the show, investors are going to be cautious to make sure the new CFO can deliver.”
He adds, “It’s a vetting period [for Taneja] in an economy that’s very shaky, coming off delivery numbers that were nothing to write home about. This isn’t exactly roses and champagne time.”
But Wedbush, a longtime Tesla bull, maintains an outperform recommendation.
And the Street is watching.
Sheryl Estrada
sheryl.estrada@fortune.com
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