Tesla Q3 earnings preview: Where next for TSLA stock?

Electric vehicle charging
Josh Warner
By :  ,  Market Analyst

When will Tesla release Q3 earnings?

Tesla will release third quarter earnings after US markets close on Wednesday October 19. Management will hold a live Q&A webcast on the same day at 1630 CT (1730 ET).

 

Tesla Q3 earnings consensus

Wall Street believes Tesla will report a 62% year-on-year jump in quarterly revenue to hit a new record of $22.2 billion and post a 50% rise in adjusted Ebitda to $4.8 billion when it releases results, according to consensus numbers from Refinitiv. The earnings whisper for EPS sits at $1.09.

 

Tesla Q3 earnings preview

Tesla is still delivering impressive growth during difficult times but is ultimately ramping-up at a slower pace than markets had anticipated.

Tesla delivered a record number of vehicles in the third quarter as it recovered from supply chain problems and Covid-19 disruption in China that plagued production in the first half. But its quarterly deliveries fell far short of the 359,162 forecast by Wall Street that had already been lowered from more optimistic estimates earlier this year. Tesla said this was down to logistical problems rather than any issues with demand or production.

  Can Tesla deliver a record number of vehicles in Q4?

Tesla made its usual end-of-quarter push to maximise deliveries but said it is ‘becoming increasingly challenging to secure vehicle transportation capacity and at a reasonable cost during these peak logistics weeks.’ There were more cars in-transit than usual at the end of the quarter, which means they won’t be officially counted as delivered until the fourth quarter. CEO Elon Musk said he was working on smoothing out deliveries each quarter as it localises production and lowers expedite costs to avoid the usual end-of-quarter rush.

Wall Street currently believes Tesla can deliver 436,427 vehicles in the final three months of 2022. That would mark a new record and be up over 40% from the year before, but it has been lowered since the miss in the last quarter.

If achieved, that puts Tesla on course to deliver 1.35 million cars during 2022. That would be up 45% from 2021, falling short of Tesla’s ambition to grow annual output by around 50%. Tesla is currently expected to deliver 1.99 million vehicles in 2023 which, while impressive, would also be below its 50% growth target. Morgan Stanley was among those to curtail its delivery expectations following the update. It now expects the electric vehicle maker to deliver 1.31 million cars in 2022, down from its previous forecast of 1.37 million. It also cut its 2023 expectations to 1.8 million cars from the previous forecast of 2.0 million.

Its factories in Fremont and Shanghai are producing a record number of vehicles at present, with the latter having benefited from a recent upgrade that doubled the plant’s annual capacity. The company opened a new factory in Berlin, Germany, back in March to mark its first site in Europe and that was swiftly followed by the launch of another plant being opened in Austin, Texas in April. The ramp-up at the new sites has been challenging and investors will want to see progress at both sites considering they have burnt through billions of dollars’ worth of cash this year.

Revenue is set to hit a record, with higher deliveries complimented by higher prices as Tesla and other electric vehicle makers pass on rising costs to consumers. Although this will be countered by unfavourable foreign exchange movements, with the stronger dollar and weaker yuan both acting as headwinds. Meanwhile, its automotive gross margin should show signs of recovery after being squeezed to less than 28% in the last quarter, marking its lowest level in over a year as disruption reached its peak.

Not all the attention is on supply as concerns about demand have started to emerge, although, for now, Tesla is still receiving orders faster than it can meet them. This is something to watch as we approach what looks set to be a tougher 2023. Wells Fargo lowered its target price on the stock earlier this month (to $230 from $280) after stating that the delivery miss in the third quarter highlights rising concern about underlying demand, particularly in China. We saw sales of electric vehicles in China rise at their slowest pace in five months in September, with the China Passenger Car Association warning the ‘recovery trend is far lower than our expectation’ and that the ‘market is overall relatively weak’. Competition with Chinese rivals is set to heighten over the coming years, especially as the likes of BYD and NIO are pushing into Europe and have eyes on the US – although it could be more difficult for foreign firms to enter the US following the recent introduction of the Inflation Reduction Act that should be beneficial to Tesla and other domestic car companies.

Competition is also intensifying at home against startups and traditional automakers, which are set to test Tesla’s market leading position over the coming years. Tesla is still the dominant player and held around two-thirds of the US electric vehicle market in the second quarter of 2022, but that has seen this lead shrink in recent years considering this sat at around 86% at its peak back in 2018. Notably, Tesla’s customer deposits have risen for five consecutive quarters, but markets believe they will fall in the second half.

Meanwhile, the threat of a recession could weigh on demand at a time when Tesla has brought on significant amount of fresh capacity. RBC Capital Markets said this month that it has concerns about overall demand, not just in China, and that it believes deliveries in the US could disappoint in the fourth quarter as some consumers may choose to delay delivery until 2023 to take advantage of tax credits.

Tesla is forecast to deliver GAAP operating cashflow of $4.28 billion and free cashflow of $1.84 billion in the third quarter and both metrics are expected to improve further in the fourth to bolster its existing $18.3 billion cash balance. Tesla has said cashflow will hold up so long as demand does and, for now, markets believe this won’t remain a problem considering they believe cashflow will experience a significant jump in 2023 as production continues to ramp-up. Ratings agency Standard & Poor’s upgraded its view on Tesla this month to ‘BBB’ from ‘BB+’ on the belief that its cashflow will continue to improve.

Elsewhere, we will get our first update since it was confirmed that beverage giant PepsiCo will become the first customer to put Tesla’s new Semi Truck on the roads. PepsiCo was the first to place an order for the commercial truck and has reserved 100 of them, and said it hopes to have the first 15 of them on the road before 2022 is over. The Semi Truck has faced severe delays considering it was originally expected to be launched back in 2019.

 

Where next for TSLA stock?

Tesla shares have lost over one-third in value since peaking almost a month ago and closed at $204.99 on Friday, marking their lowest level in 16 months. If the pressure continues, we could see the stock continue to slip toward the $199 level of support seen throughout late 2020 and the first half of 2021 – a level that must hold to avoid bringing the 2021-low of around $182 back into play.

However, the sharp selloff has pushed the RSI deep into oversold territory, suggesting it has been overdone and that some support should be found. A recovery back above $207 would install confidence that it can find some renewed support from the previous low of 2022. Any upward momentum could see Tesla swiftly rebound, first to $234, then to $242 before targeting $258, which has emerged as a level of both resistance and support on several occasions since April 2021. From there, the moving averages come back into the crosshairs.

Tesla stock is at its lowest level in 16 months

Turning to the weekly chart, we can see that Tesla has formed a series of lower-highs and lower-lows since peaking almost a year ago, with the current share price setting the latest trough and suggesting this trend could continue.

Tesla shares have formed a series of lower-highs and lower-lows

The 43 brokers that cover Tesla see significant upside potential with a current average target price of $292.66, some 43% above than current levels.

 

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