Tesla reported worse-than-expected earnings and revenue late Wednesday. Cybertruck deliveries will begin next month, but Chief Executive Elon Musk cooled expectations. TSLA shares tumbled Thursday.
Tesla reported Wednesday that third-quarter earnings fell 37% to 66 cents per share, the lowest in two years for CEO Musk. Meanwhile, quarterly revenue increased 9% to $23.35 billion. Tesla's gross profit margin slid to 17.9%, down 719 basis points. The company's auto gross profit margins, excluding regulatory credits, fell to 16.3%.
Wall Street had predicted Tesla EPS to drop 30% to 73 cents, with revenue up 13% to $24.18 billion. Analysts also expected Tesla profit margins to remain below its self-described "floor" amid fears that there will be more surprise price cuts in the final months of 2023.
Tesla added Wednesday that it had an increase in operating expenses driven by the Cybertruck, artificial intelligence initiatives and other projects. The company reported that the Cybertruck is in pilot production and that the vehicle "remains on track for initial deliveries this year," with the first deliveries of the Cybertruck scheduled for Nov. 30.
However, Musk during the Q3 earnings call Wednesday issued a warning to investors regarding the Cybertruck.
"I just want to temper expectations for Cybertruck," Musk said Wednesday. "It will take a year to 18 months before it is a significant positive cashflow contributor."
Musk said there will be "enormous challenges" in reaching volume production with the Cybertruck. He added on the Q3 conference call that Tesla will end up producing around 250,000 Cybertruck units per year. Musk said his best guess is Tesla will reach that output sometime in 2025.
The Cybertruck will be the EV maker's first new passenger vehicle since the Model Y launched in early 2020. However, Tesla still hasn't released prices or key specs that would affect Cybertruck demand and profitability.
The global EV giant also said it continues to "make progress" on its next-generation platform. Since the Tesla investor day in early March, the company has remained mostly silent on its next-generation vehicle, which will likely be produced at its new plant in Mexico. At the annual shareholder meeting, Tesla teased a vehicle silhouette.
Musk told investors Wednesday Tesla is laying the groundwork to begin construction at its Mexico plant, but with some caveats.
"We want to get a sense for what the global economy is like before we go full tilt on the Mexico factory," Musk said.
"If interest rates start coming down, we will accelerate," he added.
Tesla stock initially rose after hours on the Cybersecurity delivery event. However, on Thursday Tesla stock sank 9.3% to 220.11 during market action on the low-buzz earnings call. TSLA fell 4.8% to 242.68 Wednesday, falling below the 50-day line.
Delivery Miss Throws Long Shadow
Tesla announced in early October that it delivered 435,059 vehicles during the third quarter, well below expectations and down 6% vs. Q2. Analysts' Q3 earnings predictions have come down since then .
Tesla followed the delivery miss by chopping U.S. Model 3 and Model Y prices, a major surprise to Wall Street. It cut the base Model 3 RWD price by $1,250 to $38,990 and the Model Y Long Range by $2,000 to $48,490.
To maintain sales momentum, Tesla has aggressively cut vehicle prices throughout the year, which has dropped auto gross profit margins, excluding regulatory credits, below 20%. Tesla's auto gross profit margins excluding regulatory credits peaked at 30% in Q4 2021. Tesla's core margins tumbled to 19% in Q1 and 18.1% in Q2 of this year.
Analyst consensus had auto gross profit margins around 18.2% in Q3, according to FactSet. However, several analysts expected it to be in the 16%-17% range. On Tuesday, a day ahead of Q3 Tesla earnings, the Tesla imposed a $3,650 cut on the base Model 3 in the U.K.
Wedbush analyst Dan Ives, a longtime Tesla bull, wrote Monday that Wall Street would be "laser focused on the margin performance" in Q3.
Ives added 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 investors will be listening for Musk to discuss the philosophy around price cuts going forward especially in the U.S. and China."
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Tesla Earnings: Expectations Low, Cybertruck Focus
Late last week, 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."
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 Earnings And Stock Performance
Tesla stock is retreating below a 278.98 buy point in a cup-with-handle base, according to MarketSmith. Shares cut below their 50-day moving average in moderate volume on Wednesday. TSLA shares on Thursday dropped below 227, around the 12% maximum depth for a valid handle.
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 TSLA to 260, down from 265. Wells Fargo saw gross profit margins falling to 16.3% in Q3 and "further weakness in Q4," with expectations of profit margins below 15%.
Meanwhile, analysts maintain that the United Auto Workers strike against Ford, General Motors and Stellantis is good news for Tesla, a nonunion shop.
Tesla stock ranks fourth in the 35-stock IBD automaker industry group. The S&P 500 component has a 96 Composite Rating out of a best-possible 99. Tesla stock also has a 93 Relative Strength Rating and a 90 EPS Rating.
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