Tesla stock (TSLA) experienced a significant decline of 9.3%, reaching its lowest point in nearly two months. This drop came after the electric vehicle manufacturer failed to meet earnings expectations and CEO Elon Musk expressed concerns about the global economy, the future of its Mexico Gigafactory, and the challenging ramp-up of the Cybertruck, all of which negatively impacted the company’s shares.
During the third quarter, Tesla reported top-line revenue of $23.4 billion, falling short of analysts’ estimated value of $24.06 billion; however, the revenue showed a 13% increase compared to the previous year. From a profitability standpoint, Tesla reported adjusted earnings per share (EPS) of $0.66, which was lower than the expected $0.74, and adjusted net income of $2.3 billion, below the expected $2.56 billion.
The decrease in profitability can be attributed to expected pressure on margins since Tesla initiated cost-cutting efforts in the latter part of last year. Tesla’s Q3 gross margin of 17.9% slightly missed Wall Street estimates, which were set at 18.0%. In the previous quarter, Tesla reported a gross margin of 18.2%.
“The quarter itself delivered auto [gross margin] (ex credits) of 16.3% vs. the Street at 17.6% with margins that should stabilize over the coming quarters; however, Tesla is not committing to the end of price cuts, and that is a significant problem and concern in the near-term,” noted Wedbush analyst Dan Ives in a recent report. Following the Q3 earnings report, Wedbush reduced its Tesla price target from $350 to $310.
Looking ahead to future products, Tesla confirmed that Cybertruck deliveries are still on track for later this year, with deliveries set to begin on Nov. 30. During a conference call, Musk stated that it would take 12 to 18 months before the Cybertruck becomes cash-flow positive, and by 2025, he anticipates a production run rate of 250,000 units per year. Musk also acknowledged that Tesla would face significant challenges in achieving volume production of the Cybertruck.
“We believe the 3Q report will add to near-to-intermediate term investor concerns given company commentary that the current macro backdrop/higher rates could hinder its growth (including how quickly it ramps factories), and comments that the initial Cybertruck ramp could be slow,” wrote Goldman Sachs analyst Mark Delaney in a note to investors. Delaney subsequently adjusted his Tesla price target from $265 to $235 following the Q3 report.
However, Tesla did confirm its production goal of 1.8 million vehicles for 2023. Earlier this month, Tesla announced the delivery of 435,059 vehicles worldwide, with approximately 419,000 being Model Y and Model 3 vehicles, and the remaining 16,000 consisting of higher-priced Model X and Model S cars. Wall Street consensus estimates predicted deliveries of 456,722 vehicles.
Through the first three quarters of this year, Tesla has delivered around 1.3 million vehicles globally. To achieve its annual delivery goal, the company will need to deliver approximately 500,000 vehicles in the final quarter. Tesla also projected a gradual increase in Model Y production at Giga Austin and Giga Berlin.
Additionally, CEO Elon Musk mentioned during the conference call that while Tesla is preparing to begin construction on Giga Mexico, it first wants to assess the global economic climate before proceeding at full throttle with the project. Musk expressed concerns about the current rising interest rate environment as a potential obstacle to growth; however, he assured that Tesla plans to build the factory in Mexico eventually when asked about its future.
CFRA analyst Garrett Nelson offered a more positive outlook on Tesla’s future following the Q3 earnings report.
“Despite the miss, TSLA reiterated its 2023 volume guidance of 1.8M units and stated that while the Cybertruck is in pilot production, its annual installed Cybertruck production capacity is now over 125K units. We believe this should reassure investors who were worried about the ramp-up of this highly-anticipated new model,” wrote Nelson in a research note. He reiterated his Buy rating for Tesla but reduced his price target by $10 to $300 per share.
“We also consider investor concerns regarding recent gross margin pressures to be somewhat exaggerated, as we expect improvements in comparisons during the next few quarters,” added Nelson, highlighting that Tesla will emerge from the ongoing United Auto Workers (UAW) strike as the EV industry’s biggest winner, solidifying its competitive advantage.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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