⚡Tesla will present Q3 report today. Will it surprise Wall Street?

Electric vehicles' producer Tesla (TSLA.US) will report financial results today, after the US session closes. The company's shares have been losing ground in recent days, with the recent presentation of its autonomous car and Optimus robots, ending in profit-taking. Against the backdrop of technological rivals BigTech, whose shares are trading at historic highs, Tesla has looked like a real marauder for many quarters. The market expects the company's net profit to fall by about 10% year-on-year; the only one of its kind among the US 'Magnificent 7' companies.

Investors will want to hear more details about the 'robotaxi' business and margins, which have seen significant deterioration in recent quarters. Expectations for Tesla's base business, i.e. sales of electrics for the next 2 years, are anchored low, showing that if these assumptions prove correct, without significant catalysts in the near term, it may be difficult for the company to sustain a significant valuation premium. Here's how analysts' expectations stack up.

Expected revenues: $25.41 billion vs. $25.5 billion in Q2 2024 and $23.35 billion in Q3 2023 (up 8.9% y/y)

Expected earnings per share: $0.48 vs. $0.43 in Q2 2024 and $0.53 in Q3 2023

Net income: $1.68 billion vs. $1.48 billion and $1.85 billion in Q3 2023 (down 10% y/y)

Gross margin: 14.9% vs. 14.6% in Q2 2024 

What will Wall Street pay attention to?

• Analysts at Piper Sandler believe that regardless of the results, sustained increases are unlikely until circumstances arise to justify revisions to expectations and long-term growth dynamics
• Possible catalysts include not only the debut of a 'budget' electric car, but also regulatory approval of advanced autonomous driving software, in China
• Longboard Asset Management noted in a commentary that the electric car sector is no longer the strong growth industry it was back in 2019-2021
• Tesla's annual shipments are likely to record a year-on-year decline, although shipments rose slightly in Q3, thanks to higher purchases in China
• Investors will probably want to hear more about the debut of the 'cheaper' EV model, which was targeted to cost under $30,000 while information about it is still residual. The market will also surely pay attention to the scale and profitability of sales of the Cybertruck model, which, despite its debut, so far has a trace share of sales
• In Q3, Tesla reported deliveries of 462,900 vehicles, Wall Street expected 462,000 (including nearly 440,000 Model X and Model Y); the scale of the beat in forecasts was minimal, and shares fell. The event suggests that investors expect much more from the company

Tesla stock price chart (D1, H1 interval)

Tesla shares are trading virtually at the 200-session exponential moving average (EMA200, red line), suggesting that the market may see today's results as a 'catalyst' one way or the other. Since the beginning of the year, the stock has lost more than 12% and has fallen twice from around $260.

Source: xStation5

Source: xStation5

Tesla's financial dashboards

Tesla's valuation remains very challenging with a P/E ratio above 100 and a forward P/E around 80, suggesting that the market is still pricing the stock at a big premium, against its electric car competitors.

• On the other hand, the company is taking on competition from Chinese brands, which, as Musk himself has signaled, operate at much lower and even 'unmarketable' costs, and global EV demand has slowed.
• Debt has risen to a record $12.5 billion, but is not a significant problem, as the company has nearly twice as many assets (cash and cash equivalents, liquid assets, etc.) as liabilities.
• The company's return on invested capital (ROIC) has been falling steadily since 2022, with its weighted cost of capital (WACC) ratio virtually unchanged.

In this context, maintaining a premium in Tesla's valuation may be difficult. Important forward-looking catalysts are the lease of autonomous driving systems, and the potential production of Optimus robots. However, both catalysts carry a relatively high level of uncertainty.

Source: XTB Research, Bloomberg Finance L.P.

Source: XTB Research, Bloomberg Finance L.P.