Tesla’s Q4 Report To Drop On Wednesday: What Investors Should Expect From Difficult Quarter

As Tesla Inc. (NASDAQ:TSLA) preps to release its fourth-quarter results, listed below are some insights into what to anticipate from the report and its implication for the stock that’s taking fledging steps to recovery.

Q4 Outlook: Analysts, on average, estimate non-GAAP earnings per share of $1.13 for the fourth quarter. This represents a 35% increase from the year-ago quarter’s EPS of $0.85 per share and a 7.6% climb from the third quarter’s $1.05 per share.

See Also: All the things You Need To Know About Tesla Stock

Analyst consensus has lowered from an estimated $1.27 to $1.13 over a period of 90 days.

Tesla has consistently beaten EPS estimates in each of the 4 preceding quarters.

The Street estimates revenue of $24.16 billion, up 36.30% from the $17.72 billion reported for the year-ago period. The year-over-year growth is more likely to decelerate from the third quarter when the topline swelled 56% to $21.45 billion.

Future Fund’s Gary Black expects Tesla to report fourth-quarter non-GAAP EPS of $1.16 and auto gross margin of 27.4%. The typical selling price, or ASP, of a Tesla vehicle, is more likely to be $48,100, Black estimates.

Underwhelming Deliveries: Tesla reported in early January fourth-quarter deliveries of 405,278 units, marking a 31% year-over-year increase and 17.9% sequential growth. This rendered the full-year deliveries at 1.314 million units. The 40.3% increase for the 12 months trailed the corporate’s long-term forecast for 50% growth.

The corporate hinted at logistical challenges however the Austin, Texas-based EV maker needed to shut down the Giga Shanghai factory for a couple of month in the primary half of the 12 months on account of the COVID-19 situation within the country.

The fourth quarter saw one other set of challenges that weighed down on demand. The string of aggressive Fed rate hikes, the looming recession threat and the energy crisis in Europe on account of the continued Russia-Ukraine war all served to dampen demand. CEO Elon Musk has deflected the blame for the tepid demand solely on macroeconomic challenges.

Analysts and Tesla bulls, nonetheless, see much more issues than that. Musk’s preoccupation along with his newly-acquired social media platform Twitter and the voicing of his political opinions on the platform have hurt the brand appeal of Tesla, they are saying.

Tesla’s absence from the inexpensive segment, within the sub-$30,000 price range, was hurting the corporate, especially in China, which is certainly one of its key markets. At the same time as the corporate’s sales sagged, cars of domestic rivals resembling Warren Buffett-backed BYD Manufacturing Company Limited (OTC:BYDDY) (OTC:BYDDF) and Li Auto Inc. (NASDAQ:LI) sold like hotcakes.

Margins — Cause Of Worry: The multiple price cuts Tesla announced across geographies are widely expected to dent its margin. In China, the corporate downwardly adjusted prices through cuts, discounts and insurance subsidies starting in late October. The corporate also adjusted prices within the U.S. and Europe.

The EV maker’s automotive gross margin got here in at 27.9% within the third quarter, which marked a decline from 30.6% within the fourth quarter of 2021.

Excluding regulatory credits, which amounted to $286 million and $314 million within the preceding and year-ago quarters, automotive margins were at 26.8% and 29.2%, respectively. Regulatory credits don’t involve any costs and due to this fact they might wholly be reflected in profits.

GAAP gross margin for the preceding quarter and the fourth quarter of 2021 was at 25.1% and 27.4%, respectively.

Earnings Call Take The Highlight: Given the fourth-quarter details are already discounted by the market, the main focus is more likely to shift to the corporate’s earnings call scheduled for five p.m. EST.

Questions collected by Tesla through a third-party shareholder Q&A platform showed that retail shareholders are curious to understand how the worth cuts announced in January would impact ASPs and margins. Most appear to want updates on Cybertruck production and launch schedules.

Black, whose flagship Future Fund Lively ETF (NYSE:FFND) has Tesla as its top holding, said he would really like to find out about quantitative data on brand equity, potential stock buybacks and a Twitter CEO to exchange Musk.

Forward Outlook: On condition that Tesla has announced steeper price cuts early this 12 months, margins may very well be an ongoing issue.

Oppenheimer analyst Colin Rusch said in a recent note that investors expect a reset on auto manufacturing margins to the mid-20s.

The Street estimates for the primary quarter call for non-GAAP EPS of $1.01 and revenue of $23.4 billion. For the complete 12 months 2023, analysts, on average, estimate $4.30 and $106.31 billion, respectively.

The Tesla Stock: Tesla stock’s response to earnings has been erratic. Despite fairly robust third-quarter results reported on Oct. 19, the stock fell about 6.6% within the session after the earnings release. It, nonetheless, got here back as much as the pre-earnings level in every week before starting a downtrend.

A revenue miss within the second quarter didn’t deter investors from sending the replenish about 10% on July 21. The stock rose over 3% following its first-quarter report released on Apr. 20.

After ending 2022 with a whopping lack of 65%, Tesla shares have picked up some upward momentum amid volatility this 12 months. From the year-to-date low of $104.64 hit on the very first trading session of the 12 months, it has gained about 37.4%.

If the stock continues its uptrend, it may very well be up against a resistance area around $179-$180. Despite the recent rally, the relative strength index continues to be suggesting the stock is within the oversold zone.

The forward P/E at the present valuation is about 27.70, which is low by the historical trend.

Oppenheimer’s Rusch is of the view that if Tesla is in a position to take care of gross margins within the mid-20s through the primary half of 2023 and move incrementally higher throughout the 12 months, its stock will likely trade higher on earnings leverage potential.

Price Motion: In premarket trading on Tuesday, Tesla stock was slipping 0.36%, to $143.23, in line with Benzinga Pro data.

Read Next: Tesla Over Anything And All the things: Analyst Says Retail Investors’ Tech-Sector Priorities Clear Amid Market Meltdown

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