As Tesla Inc. TSLA preps to release its fourth-quarter results, here are some insights into what to expect from the report and its implication for the stock that is 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: Everything 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 four 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 likely to slow down 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 average selling price, or ASP, of a Tesla vehicle, is 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 year trailed the company’s long-term forecast for 50% growth.
The company hinted at logistical challenges but the Austin, Texas-based EV maker had to shut down the Giga Shanghai factory for about a month in the first half of the year due to the COVID-19 situation in the country.
The fourth quarter saw another 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 due to the ongoing 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, however, see far more issues than that. Musk’s preoccupation with his newly-acquired social media platform Twitter and the voicing of his political views on the platform have hurt the brand appeal of Tesla, they say.
Tesla’s absence from the affordable segment, in the sub-$30,000 price range, was hurting the company, especially in China, which is one of its key markets. Even as the company’s sales sagged, cars of domestic rivals such as Warren Buffett-backed BYD Manufacturing Company Limited BYDDY BYDDF and Li Auto Inc. 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 company downwardly adjusted prices through cuts, discounts and insurance subsidies beginning in late October. The company also adjusted prices in the U.S. and Europe.
The EV maker’s automotive gross margin came in at 27.9% in the third quarter, which marked a decline from 30.6% in the fourth quarter of 2021.
Excluding regulatory credits, which amounted to $286 million and $314 million in the preceding and year-ago quarters, automotive margins were at 26.8% and 29.2%, respectively. Regulatory credits do not involve any costs and therefore they would 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 Spotlight: Given the fourth-quarter details are already discounted by the market, the focus is likely to shift to the company’s earnings call scheduled for 5 p.m. EST.
Questions collected by Tesla through a third-party shareholder Q&A platform showed that retail shareholders are curious to know how the price cuts announced in January would impact ASPs and margins. Most seem to want updates on Cybertruck production and launch schedules.
Black, whose flagship Future Fund Active ETF FFND has Tesla as its top holding, said he would like to know about quantitative data on brand equity, potential stock buybacks and a Twitter CEO to replace Musk.
Forward Outlook: Given that Tesla has announced steeper price cuts early this year, margins could 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 first quarter call for non-GAAP EPS of $1.01 and revenue of $23.4 billion. For the full year 2023, analysts, on average, estimate $4.30 and $106.31 billion, respectively.
The Tesla Stock: Tesla stock’s reaction to earnings has been erratic. Despite fairly robust third-quarter results reported on Oct. 19, the stock fell about 6.6% in the session after the earnings release. It, however, came back up to the pre-earnings level in a week before beginning a downtrend.
A revenue miss in the second quarter did not deter investors from sending the stock up 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 loss of 65%, Tesla shares have picked up some upward momentum amid volatility this year. From the year-to-date low of $104.64 hit on the very first trading session of the year, it has gained about 37.4%.
If the stock continues its uptrend, it could be up against a resistance area around $179-$180. Despite the recent rally, the relative strength index is still suggesting the stock is in the oversold zone.
The forward P/E at the current valuation is about 27.70, which is low by the historical trend.
Oppenheimer’s Rusch is of the view that if Tesla is able to maintain gross margins in the mid-20s through the first half of 2023 and move incrementally higher during the year, its stock will likely trade higher on earnings leverage potential.
Price Action: In premarket trading on Tuesday, Tesla stock was slipping 0.36%, to $143.23, according to Benzinga Pro data.
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