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Earnings preview: Is Tesla facing a bottleneck in its growth?

Tesla

Tesla is to report its third-quarter earnings after the US markets close on Wednesday, 20 October. The EV maker missed the delivery estimate, but still reached a record number in the third quarter. With expectations for its revenue growth to slow down further, Tesla’s shares are at a key technical support level after a 28% drop since the 3-for-1 split late in August. In the long-term view, Tesla’s demand outlook may become a concern for investors. Hence, the company’s outlook for its growth will be a key focus of its upcoming earnings report.

A record delivery number but a drop in the profit margin

After a weak output number in the second quarter due to Shanghai’s lockdown, Tesla delivered 343,830 electric vehicles in the third quarter, less than an estimated 358,000, but the company still hit a record quarter of the delivery number. The company delivered 83,135 EVs in September in China, or an 8% increase from August, thanks to its production upgrade in the Shanghai factory. The total delivery number is now reaching above 900,000, which makes it easy to top the 1-million mark for 2022.

Tesla attributed the failure in meeting Q3 delivery expectations to supply chain snarls and shipment issues. The average estimate for the EPS of Tesla is about $1 in the third quarter or a 61% growth from the same period in 2021, but a slowdown from 148% growth in 2020. Rising costs in raw materials and logistics are the main areas that have hurt its profit margin. However, the price increase may have offset some of the cost increases. The revenue estimate is about $22 billion for the third quarter or a 59% growth year on year, higher than the prior year of 57% growth during the same period. Overall, it is expected that the company will keep its strong growth in the third quarter, but with a drop in its profit margin.

The demand outlook may be a worry

Some analysts suspect the failure of its delivery number in the third quarter may suggest a weakened demand outlook amid the macro headwinds, especially a dramatic slowdown in the Chinese economic growth. While the production capacity has been improved in its Shanghai factory, the lower-than-expected delivery number may spark concerns about whether the consumer demand in China is slowing down, where China is one of Tesla’s biggest markets. The Chinese local EV makers, such as BYD, NIO, and Xpeng may also take some of Tesla’s market share from Chinese buyers. At the same time, rising interest rates and signs of an increase in the unemployment rate in the West may weaken the purchasing power of expensive electric cars. Hence, the company’s guidance for the fourth quarter will be key to its stock’s performance.

Technical Analysis

Click to enlarge the chart

Tesla’s shares may encounter a further rebound from the key support level of 203 as indicated by RSI, which is in oversold territory, along with a spike in the trading volume. The potential short-term target may be around 252 at the 23.6% Fibonacci retracement, then 264, which was the closing price before the price gap when it released the missed third-quarter delivery number.

On the flip side, a bearish breakout of the key support at 203 may take the share’s price and further test the resistance of 180. 


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