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Tesla share price set to sink as revenues and margins miss

Tesla gigafactory

With the Tesla share price just above its lows for the year, and a key technical support area, last night’s Q3 results and Q4 outlook were always likely to be key arbiters of where we might go to next.

We already know that Tesla delivered 343k cars in Q3 which was slightly below expectations, however what we didn’t know was whether this was achieved at the expense of revenues, lower selling prices, and whether rising costs were eroding profitability.

Last night’s numbers showed that Q3 revenues fell short at $21.45bn, and although a record number, was below the $22.09bn expected. Profits on the other hand did beat expectations, coming in at $1.05c a share.

The hit to revenue appears to have been blamed on negative FX effects which is a euphemism for the continued strength of the US dollar, as well as lower average selling prices, with the shares falling sharply after-hours.

The stronger US dollar is likely to be a recurring theme for this earnings season. So far this year investors have been content to dismiss this, however the references to it are becoming ever more notable. We heard a similar refrain from Netflix earlier this week.

Once again, the Model 3 and Model Y’s accounted for the bulk of the deliveries. 

Gross margins came in unchanged from Q2 remaining at 27.9%, below expectations of 28.4%, which was another disappointment.

Its solar business saw 94MW of power delivered just below the 106MW delivered in Q2.

In terms of vehicle capacity at its factories Tesla said vehicle transportation capacity was becoming more of an issue than availability of components, while battery supply chain constraints would also be a limiting factor in the medium and long term. Lithium prices especially were proving to be "crazy expensive" according to Musk, even as other cost pressures were easing.

Profitability was also modestly impacted by ramp production issues at the Gigafactory in Texas and Berlin.

As for their delivery target for the current year of 1.3m vehicles, Tesla will need to deliver another record quarter of 391k vehicles.

As for the outlook Tesla said it continues to look at growing the manufacturing capacity of 50% annual growth on a multiyear horizon.

On the Cybertruck the project is in the tooling phase, while the Semi is in early production at the Nevada factory and expected to start shipping in December.

CEO Elon Musk was much more bullish, as you would expect, saying that he sees an “epic” end to the year, while also raising the prospect of a share buyback.

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