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Will Q3 results refuel Tesla’s share price rise?

Will Q3 results refuel Tesla’s share price rise?

Tesla’s share price has moved swiftly through the gears this year, accelerating from last year’s closing price of $83.67 to its all-time high on 1 September at $502.49, a huge gain of 500%.

The shares have been on a bumpy ride since then, but appear to be moving generally on an upward trajectory again, closing last week at $439.67, which still represents a highly impressive gain in Tesla’s share price of 425% year-to-date.

Tesla share price unmoved by profit first

When Tesla reported its Q2 numbers in July, the company surprisingly managed to report a profit of $104m – the first time Tesla had managed to turn a profit for four successive quarters. Shareholders seems unimpressed though, as Tesla’s share price fell in the following day’s trading, dropping from $318.47 to close at $302.61. This ‘Tesla first’ did however raise hopes that it might get included in the S&P 500 index, but the US electric carmaker will now have to wait a while longer.

While Tesla was unsuccessful in its bid to get into the S&P 500 on this occasion, Tesla fans will be hoping that it will be able to pull off another quarter of profit in Wednesday’s earnings update. However, the numbers are being flattered by the sale of regulatory credits to the tune of $428m, which means that the company is still relying on sleight of hand in terms of being profitable on costs and sales.

Can Tesla hit its delivery target?

Second-quarter revenue came in at $6.04bn, as Tesla sold 90,650 vehicles in Q2, above the 88,000 sold in Q1, when production was disrupted due to Covid-19 related shutdowns.

CEO Elon Musk has continued to maintain that the company will be able to hit its 500,000 delivery target for 2020, with the help of its Chinese factory which opened at the beginning of the year, having missed out on its target in 2019.

Tesla has indeed reported a record number of deliveries for the three months to September, with 139,300 deliveries in Q3, yet despite an impressive figure compared with its competitors, still puts its half-a-million target in doubt. Tesla has now delivered close to 319,000 electric vehicles so far this year, mostly responding to demand for the lower-priced Model 3 and newer Model Y.

Credit Suisse analyst, Dan Levy, is one analyst covering Tesla who believes the delivery target will stay out of reach. “We believe [Tesla] will be hard-pressed to reach its target, as it would need to produce near capacity for all of Q4.” Levy said last week. The good news for Tesla’s share price prospects though, is Levy’s assertion that “even if Tesla misses its 500,000 target, we expect investors to look through it as the longer-term growth narrative is intact.”

Musk will be no doubt be hoping that Tesla is able to repeat its trick of last year, where a poor first half was followed by a bumper second half of the year. The only problem with that is that the coronavirus pandemic may have other ideas.

Despite concern on how its profit is being reported, consensus expectations are for a quarterly profit of $0.57 a share, which would extend its run of four successive profitable quarters.

Tesla is due to report its Q3 results after the US market close on Wednesday 21 October.

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