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Q3 Earnings Preview for Tesla

Tesla

The US big tech earnings will kick off with Netflix and Tesla after the US markets close on 18 October, which will be the morning of 19 October in the Asia-Pacific time zone. Amid the broad rebound on Wall Street in October, investors may be pricing in strong earnings results in the third quarter. Hence, their earnings results will be critical for market sentiment after a two-month slump in US tech stocks. Tesla’s profit margin will be key parameters in its earnings reports. Below are the potential trends that the tech giant was brewing into and the potential impacts on its third-quarter earnings result.

Q2 Review

Tesla has lost its momentum in the past two quarters due to price cuts and slowing sales growth. In the second quarter, the EV maker reported a record car delivery number, but the profit margin dropped 9.6%. Tesla reported revenue of 24.93 billion, up 47% year on year. Its earnings per share were $0.91, up 20% from a year ago. The net income came to $2.7 billion, up 20% from the same period last year but slowed sharply from a 59% increase in the second quarter of 2022.

Car sales slowed significantly

Tesla delivered 435,059 electric cars in the third quarter, well below an estimated 461,640. Car delivery rose 26.5% year on year, the slowest pace since the second quarter of 2022.  The company said, “A sequential decline in volumes was caused by planned downtimes for factory upgrades, as discussed on the most recent earnings call,” and it kept the guidance of 1.8 million car deliveries for 2023. However, a slowdown in car sales and the ongoing price cuts may squeeze its profit margin further in the third quarter.

China sales challenges

Tesla faces the challenge of weakened demands and fierce competition in China, which accounts for 23% of its sales revenue in the second quarter. According to the China Passenger Car Association, sales of Tesla’s China-made electric vehicles fell 10.9% year on year in September. And sales for Model 3 and Model Y slid 12% sequentially during the same period.

Apart from slowdown demands, the largest Chinese EV maker, BYD, is eating up Tesla’s market shares in China. In the third quarter, BYD delivered 824,001 vehicles, out of which 431,603 were electric cars, compared with 435,059 car deliveries by Tesla, which is the closest number between the two companies in history.

Cybertruck and Dojo project

Cybertruck and the AI development, or so-called the Dojo project, can be seen as the key areas that drive Tesla’s future growth. In the second quarter earnings call, CEO Elon Musk said the company would start delivering Cybertruck this year, and a “high volume” is expected to be in next year. The company will invest $1 billion in Dojo, which is a supercomputer that supports AI training, aiming to aid its Self-Driving (FSD) systems. However, the two advanced technologies have not made meaningful progress in monetization.

Q3 forecast by Bloomberg

Earnings Per Share: $0.748, -7.57% year on year

Revenue: $24.39 billion, -2.18% year on year

Net Income: $2.642 billion, -7.90% year on year


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