US electric car maker Tesla (TSLA.US) reported financial results after yesterday's session, which disappointed analysts with decelerating revenue growth. The decline in Tesla's shares may affect the overall sentiment of the stock market indices, with the shares losing nearly 6% before the market opened.
Tesla's earnings in numbers:
Revenue: $21.45 billion vs. $21.96 billion forecast and $13.76 billion in Q2 2021
Earnings per share (EPS): $1.05 vs. $0.99 forecasts
Net income: $3.33 billion vs. $1.65 billion in Q3 2021
Automotive revenue: $18.69 billion (up 55% y/y)
Cost of revenue: $13.48 billion vs. $10.52 billion in Q2
Gross margin 27.9% (flat k/k)
Deliveries: 343,000 Production: 365,000
- Deliveries of Tesla's first truck, the Nevada-manufactured SEMI model, will start in December. The company has not indicated any specific date regarding the start of deliveries of the Cybertruck pickup models, which are particularly popular in the US; the cars are to be produced by a factory in Texas;
- According to Tesla, a bottleneck in the supply chain weakened results. At the end of the quarter, more than 20,000 car models were in transit. The company's executives also revealed that logistical challenges are prompting management to pursue a new strategy to cut costs. According to the company, huge deliveries are making logistics services for the company more expensive and harder to secure. Tesla intends to move to a smoother pace of deliveries, and according to management, systematizing logistics will improve quarterly reported costs;
- According to the company's announcement, the primary factor limiting the growth opportunities in the electric car market will be continued disruptions in the supply chain for battery packs, "both in the medium and long term." This means that improvement in this field is not visible on the horizon. Tesla's electric car segment is competing for cell supplies with other EV manufacturers and its own 'energy storage' division.
A victim of its own success?
The company reported record operating profit, cash flow and revenue. The latter, however, came in $500 million below Wall Street expectations, which was enough to cause sentiment to fall. The company invariably expects to maintain a 50% growth rate in annual shipments over the long term, but this too was not enough to stem declines. The company's shares appear extremely sensitive to any kind of negative news. According to Wedbush Securities analysts, the pressure to 'prove' the value Tesla claims is starting to weigh on Musk and his team. Many investors, despite Tesla's solid performance, are beginning to believe that the company's 'euphoric phase' of growth is over, and that revenue growth of several tens of percent is no longer positively 'shocking the market'. The stock has lost more than 35% since the beginning of the year against a nearly 22% decline in the S&P 500 index, significantly the decline comes after two after two years of huge gains. Increasing competition in the electric car market, Musk's interest in the $44 billion acquisition of Twitter and the likely financing of the takeover with Tesla shares, negative press around the automated driving model of cars and finally the controversial presentation of the Optimus robot are responsible for the drop in sentiment around the company's shares.
Will Tesla save its stock market valuation?
Elon Musk has announced a planned massive 'buyback' program of Tesla shares worth between $5 billion and $10 billion, an initiative awaiting formal approval from the company's board. The share buyback would take place as early as next year and could salvage much of the sentiment around the form's stock. Typically, companies are thought to buy back their own shares when they believe they are undervalued. According to Musk's briefing on a conference call with analysts, the board is tentatively in agreement to carry out the buyback, and Tesla will be able to perform well in a recessionary environment making the program all the more seem like a sensible strategic move. The share buyback program would start next year.
Magic predictions by Elon Musk
The billionaire commented optimistically on the results, highlighting the factories operating at full capacity and the continued strong demand for electric cars. He pointed to difficult macro circumstances in Europe and China, which are weighed down by the crisis, and contrasted them with the still healthy U.S. economy, which Musk believes is being weighed down by the Fed aggressively raising rates, but the billionaire expects bankers to soon pull back from the monetary tightening cycle. Musk stressed that, in his view, Tesla is capable of generating a significant amount of cash even in the face of a painful recession. There was, of course, a part for fantasy fans in the familiar; the billionaire stated that ultimately Tesla will be worth more than Apple and Saudi Aramco combined, but the road to achieve this will not be easy at the same time.... he stressed that his forecast does not include the planned production of Optimus robots. Tesla would have to increase its market capitalization 8 times to equal the value of the Saudi and Silicon Valley giant today. If this was followed by 8 times more deliveries (and sales) of cars, Tesla would have to deliver volumes to the market in the vicinity of 9 million cars per year, which is comparable to the current performance of Volkswagen Group (8.9 million deliveries in 2021).
Tesla robot in every home
Combining the predictions with Musk's vision from the recent 'AI Days' conference, it seems that it is not electric cars, but ... humanoid robots would help Tesla leapfrog its value, so stated Musk himself whose view is that the sales potential of robots is far greater than electric cars. However, the presentation of Tesla's flagship robot, 'Optimus', turned out to be far from ideal, to say the least. Commenting on the event, new technology fans were disgusted by the sight of the robot, which had to be carried on stage by several people and resembled a clumsy structure connected by cables. The Tesla Bot gave the impression of being a decade older brother to the impressive machines supplied by Boston Scientific. Convincing billions of people to buy the robots, valued at $20,000, may prove to be a much bigger challenge for the company than Musk himself would have liked, although Tesla's results remain impressive. However, they could not live up to Wall Street's rising expectations from quarter to quarter, the company having failed to positively surprise analysts after a long upward streak.
Tesla has continuously derived the bulk of its revenue from car sales. Services and energy storage account for about 10% of revenue. In the third quarter of the year, Tesla added another 41 new locations in the form of service facilities and stores, a 6% quarterly increase. The company has 728 locations where it provides mechanical services and a fleet of 1,532 cars used by mobile service technicians. Sales of Tesla-branded merchandise, car repairs and power charges at Tesla Supercharging stations rose to $1.65 billion. Tesla's energy supply and storage unit was responsible for $1.12 billion in revenue (backup batteries, solar panels). Tesla boasted a huge demand for energy storage services that exceeds the company's logistical capacity, with the company installing systems with a storage capacity of 2,100 mWh in Q3. Source: CNBC
Tesla (TSLA.US) chart, H4 interval. The stock price has been in a dynamic downtrend since the second half of September. The intersection of the 50-session average below the SMA200 known as the 'death cross' often heralds prolonged weakness. The opening indicates levels near $200 from where bears are likely to want to seize the opportunity and break through key psychological levels. Tesla's performance, however, is still hard to call weak, and demand may wake up as soon as the short-term downtrend passes. The company continues to be dragged down by overvalued fundamental ratios like price-to-earnings and price-to-book value, which are several times above the index average and reflect market expectations for Tesla's growth. Source: xStation5
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