Tesla stock (TSLA) sank 9.3% to its lowest level in nearly two months, after the electric vehicle maker missed on earnings and CEO Elon Musk’s concerns about the global economy, future of its Mexico Gigafactory, and challenging Cybertruck ramp-up weighed on shares.
For the third quarter, Tesla reported top-line revenue of $23.4 billion, missing analysts’ estimates of $24.06 billion; however, revenue did climb 13% from a year ago. From a profitability standpoint, Tesla reported adjusted earnings per share (EPS) of $0.66 versus $0.74 expected and adjusted net income of $2.3 billion versus $2.56 billion expected.
The drop in profitability could be attributed to expected downward pressure on margins since Tesla began its cost-cutting efforts late last year. Tesla reported a Q3 gross margin of 17.9%, slightly missing Wall Street estimates of 18.0%. Last 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 big problem and overhang for the stock in the near-term,” Wedbush analyst Dan Ives wrote in a note published Thursday morning. Wedbush lowered its Tesla price target to $310 from $350 following Q3 earnings.
Looking ahead to future products, Tesla revealed Cybertruck deliveries remain on track for later this year, with deliveries beginning on Nov. 30. On the conference call, Musk said it would take a year to 18 months before the Cybertruck would be cash-flow positive and that by 2025 he expected a production run rate of 250,000 units a year. Musk added that Tesla would face “enormous challenges” in reaching 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 gate its growth (including how quickly it ramps factories), and comments that the initial Cybertruck ramp could be slow,” Goldman Sachs analyst Mark Delaney wrote in a note to investors. Delaney subsequently lowered his Tesla price target to $235 from $265 following the Q3 report.
Tesla, however, did reiterate its 2023 production goal of 1.8 million vehicles. Earlier this month, Tesla said it delivered 435,059 vehicles globally, of which approximately 419,000 were Model Y and Model 3 vehicles and around 16,000 were higher-priced Model X and Model S cars. Wall Street consensus estimates had deliveries pegged at 456,722.
Through three quarters of the year, Tesla has delivered around 1.3 million vehicles globally, so the company will need a very strong quarter — of around 500,000 deliveries — to hit its annual delivery goal. Tesla did project that it expects Model Y production to gradually ramp up higher at Giga Austin and Giga Berlin.
Also, CEO Elon Musk noted on the conference call that while Tesla is laying the groundwork to begin construction on Giga Mexico, he wanted to get a sense first of global economic conditions before going “full tilt” on the build-out. Musk raised concerns about the rising interest rate environment as an impediment to growth but said Tesla will eventually build the factory in Mexico when questioned about the project’s future.
CFRA analyst Garrett Nelson had a more upbeat take on Tesla’s prospects following its Q3 earnings report.
“Despite the miss, TSLA reiterated 2023 volume guidance of 1.8M units and said that while the Cybertruck is in pilot production, its annual installed Cybertruck production capacity is now in excess of 125K units, which we think should reassure investors concerned about the ramp-up of the highly-anticipated new model,” Nelson wrote in a note, reiterating his Buy rating for Tesla, though shaving his price target by $10 to $300 a share.
“We also view investor concerns regarding recent gross margin pressures as somewhat overblown, as comps should improve in the next couple of quarters,” Nelson said while adding that Tesla will emerge from the ongoing United Auto Workers strike with an “even wider competitive moat” as the industry’s biggest winner in the EV race.