Tesla reports third-quarter earnings and revenue late on Wednesday with analysts and investors tempering expectations after the global EV giant announced in early October lackluster Q3 deliveries. TSLA sank Wednesday.
Wall Street expects Tesla EPS to drop 30% to 73 cents, the lowest in two years for Chief Executive Elon Musk, but with revenue increasing 13% to $24.18 billion. Analysts are also expecting Tesla profit margins to remain below its self-described "floor" amid fears there will be more surprise price cuts in the final months of 2023.
However, Tesla bulls appear to already be betting on a fourth-quarter rebound in deliveries with the revamped Model 3 in China and the expected Cybertruck delivery launch.
On Thursday, Morgan Stanley analyst Adam Jonas wrote that "expectations seem quite low on the quarter." Jonas said in his research note that "it is tough to find an investor who doesn't expect negative revisions out of the quarter."
The Morgan Stanley analyst added that the focus will be less on Q3 and more on 2024 volumes and Cybertruck execution. Meanwhile, Wedbush analyst Dan Ives, a longtime Tesla bull, wrote Monday Wall Street will be "laser focused on the margin performance and overall outlook for 4Q."
Ives added a major topic on the Q3 conference call with Musk will be the new Model 3 and updates on Cybertruck production. The analyst predicts the Cybertruck will start rolling out to customers around "November/December." Ives previously expected a Halloween time frame for the Cybertruck.
"While the macro is clearly not roses and rainbows we believe Tesla's demand story has stabilized at current price levels with a focus on a strong 4Q ahead," Ives wrote.
Also on Monday, Piper Sandler analyst Alexander Potter lowered his price target on Tesla to 290 from 300 and kept an overweight rating on the shares.
"Cybertruck and other growth initiatives are on the horizon — but still, we wouldn't be surprised if TSLA trades sideways, at best, in the coming months," Potter wrote.
Tesla stock fell 4.8% to 242.73 Wednesday during market action. On Tuesday, TSLA advanced 0.4% to 254.85.
Delivery Miss Throws Long Shadow
Tesla announced in early October it delivered 435,059 units during the third quarter, well below expectations and down 6% compared with the second quarter. Analysts' earnings predictions have been coming down since then. The current estimate is down 4 cents vs. Sept. 29 and 48% below the forecast at the end of 2022, according to FactSet.
Tesla followed the delivery miss by chopping U.S. Model 3 and Model Y prices, a major surprise to Wall Street, reducing the base Model 3 RWD price by $1,250 to $38,990 and the Model Y Long Range by $2,000 to $48,490.
Tesla has aggressively cut vehicle prices throughout the year, which has dropped auto gross profit margins, excluding regulatory credits, below 20%.
Analyst consensus has auto gross profit margins around 18.2% in Q3, according to FactSet. However, several analysts are expecting it to be in the 16%-17% range.
Ives said Monday that Wall Street has shown patience but that the "time to see a line in the sand for the price cuts is now here we believe and investors will be listening for Musk to discuss the philosophy around price cuts going forward especially in the U.S. and China."
Tesla Stock And Earnings
Tesla stock currently resides below a 278.98 buy point in a cup-with-handle base, according to MarketSmith. Aggressive investors could use the Oct. 10 high of 268.94 as an early entry.
Last week, UBS lowered its 12-month Tesla stock price target to 266, down from 290. This comes a month after the firm increased its TSLA target to 290 from 270. Meanwhile, Jefferies also recently reduced its price target on Tesla stock to 250, from 265. The firm predicts Q3 revenue will total $23.87 billion with EPS of 64 cents.
On Oct. 9, Wells Fargo reiterated an equal weight rating on Tesla. The firm cut its 12-month price target on the stock to 260, down from 265. Wells Fargo also sees gross profit margins falling to 16.3% in Q3 and "further weakness in Q4," with expectations of profit margins below 15%. The firm also cut its full-year EPS prediction from $3.20 to $2.95 for Tesla.
Analysts maintain that the United Auto Workers strike against Ford, General Motors and Stellantis is good news for Tesla, a nonunion shop.
"This is an important conference call for Musk and the Tesla team to communicate the pricing/margin strategy and demand outlook into 4Q," Ives wrote Monday.
Tesla stock ranks fourth in the 35-stock IBD Automaker industry group. The S&P 500 component has a 97 Composite Rating out of a best-possible 99. Tesla stock also has a 94 Relative Strength Rating and its EPS Rating is 93.
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