Elon Musk’s Tesla is gearing up to report its Q3 earnings after market close, and investors are watching closely to see how the electric vehicle (EV) maker’s price-cutting spree has affected its profitability.
Given how Tesla’s stock has responded to previous earnings reports this year, a post-earnings shake-up in the share price is likely imminent.
A Crucial Earnings Call Ahead
Tesla (NASDAQ: TSLA), headquartered in Austin, Texas, is expected to release its Q3 earnings soon. The stock has been treading water in recent months, and this earnings report is seen as a potential catalyst to push it back into an upward trajectory.
Throughout the year, Tesla has made numerous price cuts across its models globally. While this move was likely aimed at boosting demand and defending market share, it has raised concerns that the company is compromising its profit margins and earnings per share (EPS). Early October's vehicle delivery and production numbers further heightened caution, showing a 6% quarter-over-quarter decline.
Tesla attributed this drop in deliveries to planned factory upgrades and maintenance work. CEO Elon Musk maintained that production slowdowns were intentional and part of long-term efficiency planning. However, market expectations were set higher—analysts anticipated over 455,000 deliveries, but Tesla fell short, reporting less than 430,000. This underperformance has cast a shadow over Q3 earnings expectations.
In Q2, Tesla reported EPS of $0.91, beating InvestingPro’s forecast by 10%. Revenue came in at $24.92 billion, largely in line with estimates. For Q3, however, EPS expectations have been slashed by nearly 50% to $0.73, with consensus revenue projections around $24.14 billion. Notably, 21 analysts have downgraded their earnings estimates for the quarter.
Tesla’s past earnings releases this year have triggered significant stock volatility. After Q2 results were announced in July, the share price dropped sharply and struggled to recover for weeks. If history is any guide, Q3’s release could bring a similar price reaction.
All Eyes on Margins
While Tesla continues to grow revenue each year, profit margins are now at the forefront of investor focus. The company has maintained a steady pace of growth since Q3 2020. Yet, Q1 2023 showed a concerning slowdown, with only 21% revenue growth—the weakest in three years. Although Q2 marked a partial recovery, the lower-than-expected vehicle delivery numbers in Q3 have adjusted expectations downward again.
Tesla’s ongoing price-cutting strategy has directly pressured its gross margin. While the company’s goal appears to be market dominance, the ability to maintain strong margins while defending market share is now under scrutiny. Gross margins dropped considerably throughout the year, reflecting this internal conflict.
Even so, Tesla continues to lead its peers in margin performance. When compared to other EV and traditional auto manufacturers, Tesla’s operating margins, return on equity (ROE), return on capital employed (ROCE), and net margin all outperform. Meanwhile, peers often show negative figures in these same metrics.
Tesla’s ability to maintain superior operational efficiency amid price cuts is commendable. Musk has reiterated his commitment to further cost reductions in manufacturing and operations—moves that could help support operating margins even as vehicle prices remain lower.
Mixed Signals from Financial Forecasts
From a growth perspective, Tesla remains one of the top players in the EV sector. However, there are warning signs. Year-over-year revenue growth of 40% trails the industry average of 67%, and five-year revenue and net income forecasts are also below sector norms. This suggests potential long-term headwinds if Tesla cannot sustain its current pace.
Nonetheless, Tesla still benefits from strong fundamentals. According to InvestingPro’s performance model, Tesla ranks positively in terms of operational efficiency, profitability, and momentum. Cash reserves remain robust, far exceeding debt levels. On the downside, valuation metrics like price-to-earnings (P/E) remain elevated, and analysts have downgraded their Q3 outlook.
Moreover, Tesla’s lack of dividends may deter long-term income-focused investors, especially during periods of high volatility. However, this approach allows the company to reinvest capital into R&D and manufacturing capacity.
Is TSLA Fairly Valued Now?
According to 12 different financial models and 36 analyst consensus estimates, Tesla's fair value is estimated at $251 per share—very close to its current market price. This suggests the stock may be fairly priced for now, with limited upside unless Q3 earnings significantly outperform expectations.
Technical Analysis: Bulls Holding the Line
From a technical standpoint, TSLA investors are attempting to defend the $250 price level. Despite the October delivery miss and analyst downgrades, support around this price remains intact.
Tesla’s weekly chart shows reduced volatility in 2023. While the uptrend is still technically valid, price momentum stalled in September following peaks in July and August. If support at $245 fails, it could trigger a bearish breakdown toward the $185–200 range.
Conversely, the nearest resistance level is around $255. A strong daily close above this level could pave the way for a breakout toward the $350 range.
Conclusion: Margin vs. Market Share
Tesla’s current strategy is a balancing act between preserving its competitive edge and protecting profitability. The upcoming Q3 earnings report will be critical in determining whether the company has managed to maintain this delicate balance. If Tesla can demonstrate that its margin control efforts are paying off while maintaining—or even expanding—market share, investors may regain confidence and reignite bullish momentum.
Still, caution is warranted. With analysts already dialing back expectations, any further disappointment could spark renewed selling pressure. For long-term believers in Tesla’s vision, the current volatility may offer opportunities. But for short-term traders, the next earnings report could be a decisive moment.
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