Tesla shares moved lower in early Tuesday trading, extending their monthly decline to around 13%, as investors look to the EV maker's third-quarter earnings to arrest a slide triggered in part by a disappointing robotaxi launch event.
Tesla (TSLA) has lost more than $540 billion in market value since its November 2021 peak. The automaker spiraled into a global EV price war that eroded its commanding market share and ate into its profit margins.
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But the stock has rebounded firmly from its early April lows as CEO Elon Musk signaled a major shift in focus for his signature company. He said it would center on artificial intelligence technologies that power robotics, self-driving cars, and its nascent energy storage business.
Some of that momentum has stalled, however, following Tesla's highly-anticipated robotaxi reveal event earlier this month in Los Angeles, which was replete with ambitious projects and targets but short on details as to how to achieve them.
"We were disappointed by the lack of detail regarding Tesla's near-term product road map, e.g., the more affordable model and Roadster, both of which Musk said would achieve first production in 2025 on its last conference call," said CFRA analyst Angelo Zino. "We think the event did little to change an opaque intermediate-term earnings outlook."
That likely puts this week's third-quarter earnings, slated for after the close of trading on Wednesday, in unusually sharp focus as investors look to the group's legacy carmaking business to steady the ship as it moves toward the autonomous future that Musk has promised for so many years.
Tesla delivery targets in focus
Analysts expect the group to post a bottom line of 58 cents per share, down 12.1% from the same period last year, with revenues rising 8.65% to $25.37 billion.
Tesla, which earlier this year cautioned the 2024 deliveries would be "significantly lower" that 2023 levels, shifted around 463,000 vehicles over the three months ending in September, a 6.4% increase from last year that snapped a streak of two consecutive quarterly declines.
Despite Tesla's earlier warnings, Musk has said the group can top last year's record 1.8 million delivery tally, but that would require a blowout fourth quarter performance of more than half a million - and likely further price cuts or incentives.
"Looking to the rest of the year with the anticipated rebound in delivery performance to the rest of the year, we remain confident in Tesla’s ability to hit 1.8 million deliveries for FY24 which we will view as a solid feat given the extensive white-knuckle moments seen throughout the first half of the year," said Wedbush analyst Dan Ives, who carries a $300 price target and an 'outperform' rating on Tesla stock.
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"While autonomous, FSD, and robotics is the future for Tesla, deliveries in the near-term will drive the stock, and the Street will be laser-focused on 3Q, showing a margin/demand inflection point in the Tesla story heading into 2025," he added.
The impact on profit margins could also be notable, given the $12,000 cost and Tesla's average selling price of $45,000.
Musk has also said that Tesla is discussing licensing the technology to a "major" original-equipment manufacturer and is "very open to licensing our full self-driving software and hardware to other car companies."
Tesla's margin growth is key
Gordon Johnson of GLJ Research, however, thinks that Tesla's aggressive financing options, known as rate buydowns, and fewer Zero-Emission Vehicle (ZEV) credits will lead to a "significant Q3 adjusted earnings miss" for the group and the chance for negative free cash flow.
Profit margins will also be in focus, given the group's near-term reliance on vehicle deliveries as it maps out its autonomous future. Gross margins are forecast to fall by around 600 basis points or 0.6%, to 17.3% for the third quarter.
"Margins will be a key focus on the conference call as the Street want to see a leveling off for Auto GM (ex credits) and track back heading towards the ~20% threshold level for 2025," Ives said. "We need to start seeing this key metric head into the high teens for 3Q/4Q to give the Street comfort much of the price cuts are in the rearview mirror showing better margin days are ahead for 2025."
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Musk will likely speak to investors on the post-earnings call and is expected to face questions regarding some of the bolder promises from the robotaxi event, which included a prediction that all Tesla vehicles in Texas and California will be able to operate without driver supervision as early as next year.
He also posted on his verified X social media account that, pending final regulatory approval, Tesla's full self-driving advanced driver-assistance software will be available in Europe and China next year.
He may also address market speculation that Tesla has dumped plans to build a low-priced EV sedan on its current production platform, a development that could have big implications for its sales volumes over the coming years.
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The overarching narrative, however, will likely focus on Musk's AI-powered ambitions and the timeframe the group will need to bring its self-driving vehicles to market while launching and expanding its robotaxi fleet.
"My long-standing optimism about Tesla’s opportunity has been tested by the painful reality that this is taking much longer than I anticipated," said Deepwater Asset Management analyst Gene Munster, a longtime Tesla bull.
"Patience has become a core value for investing in Tesla," he added. "The bad news is when it comes to autonomy, this is likely going to take longer than I would have thought a month ago."
Tesla shares were marked 0.65% lower in premarket trading to indicate an opening bell price of $217.43 each, a move that would leave the stock down around 12% for the year.
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