After a strong first half of the year, shares of Tesla (TSLA) -) have dipped recently, previously closing down 3% at $251.12, a trend that continued in pre-market trading. Still up slightly more than 100% for the year, investors are anxiously looking ahead to the earnings Tesla will report Wednesday.
As the report edges closer, many investors, according to Morgan Stanley's Adam Jonas, are not feeling very positive about the quarter.
Related: Here's why the Tesla bears are very wrong, according to Wedbush analyst Dan Ives
After hosting a lunch with several prominent Tesla investors last week, Jonas wrote in a note that investor sentiment leading into earnings "skews cautious." Investors remain disinterested in Dojo and Tesla's self-driving efforts due to their unpredictability and Musk's consistently fruitless promises relevant to the topic.
Investors are additionally nervous about the coming Cybertruck; a further delay in the full production and mass delivery of the new Tesla model, Jonas said, could cause another round of price cuts, something that is feeding the negative sentiment around the stock.
"The price war in China is a high stakes poker game for Tesla as so far the 'volumes over margin' thesis has worked well to gain market share," Wedbush analyst Dan Ives said, adding that "this trend cannot continue at this pace into 2024."
Ives noted that the price war, alongside gross margins, will be a "major focus" for Tesla's outlook post-earnings.
Jonas forecasted that Tesla's gross margin, due to said price cuts, will fall to 17.5% for the quarter, down from 19% in the first quarter and 24.3% in December 2022. Wells Fargo analyst Colin Langan predicted that, assuming price cuts will continue into the fourth quarter, the company's margin could dip below 15%.
These falling margins, Gene Munster, managing partner at Deepwater Management said last week, will help pull Tesla closer to the margins of its fellow automakers, and further from the margins of the Big Tech companies Tesla would like to join.
But Gary Black, managing partner of The Future Fund, which remains "hugely bullish" on the Cybertruck, noted a forecast of 40% volume growth and 39% earnings-per-share growth for the coming year.
Related: Elon Musk makes a big move to compete with Jeff Bezos' Amazon
"Low expectations and negative sentiment going into Wednesday’s Tesla earnings probably a good thing," he added.
Against this backdrop of cautious investor sentiment, Tesla delivered 435,000 vehicles for the quarter, below Street estimates of 455,000. The company said that it is still on track to reach a volume of 1.8 million units for the year.
"We agree with the consensus that the performance of Tesla stock following the print will likely be driven by comments on the forward outlook," Jonas wrote.
Opening at $250.05, shares of Tesla rose slightly Monday morning.
Action Alerts PLUS offers expert portfolio guidance to help you make informed investing decisions. Sign up now.
