Tesla’s margins are likely to drop in the third quarter and take a bigger hit in the last three months of 2023, leaving investors fretting about more price cuts needed to boost demand.
The electric automaker has given up some profitability to drive sales of its aging vehicle line-up in a high-interest rate environment and amid competition from China’s BYD (002594.SZ), (1211.HK).
“I don’t think the price cuts are over, mainly for the reason that demand is still weak,” said Thomas Martin, senior portfolio manager at Tesla shareholder Globalt Investments.
Here are the top five things to look out for in Tesla’s earnings:
Investors will look for details on how CEO Elon Musk plans to ensure the company will deliver a record 476,000 vehicles in the fourth quarter to meet its annual goal of 1.8 million units.
Tesla has already cut U.S. prices of its Model 3 compact sedan and Model Y SUV in October. Last month it slashed prices of its premium S and X models and unveiled for some markets a restyled Model 3 with a longer driving range.
But Tesla is yet to start deliveries of the new Model 3 in China and Europe and has not yet given a timeline for its U.S. launch.
The price war – including cuts of more than 6% across models in the July-September period – likely pushed Tesla’s margins to a four-year low of 18.1%, excluding regulatory credits, according to nine analysts polled by Visible Alpha.
The slump will continue into the fourth quarter and margins could dip below 15%, said Wells Fargo analyst Colin Langan.
“We are factoring in help from the recent decline in lithium prices. However, that likely falls short of offsetting the price cuts,” Langan said.
Tesla pushed its Cybertruck launch event to the end of the year from September. Musk has said the truck’s design is hard to build.
The company had in 2019 projected a price of under $40,000 for the Cybertruck, but EV prices have risen since then.
“It will be around $49,900 for the single motor, probably $59,900 for the dual motor and probably $79,900 for the tri-motor, a little bit higher than Model Y,” said Gary Black, managing partner of The Future Fund, which owns Tesla stock.
Musk has long touted the potential of Tesla’s full-self driving technology to boost Tesla’s value. But the company has for years missed its targets to achieve the capability as the technology is under regulatory scrutiny over safety concerns.
Tesla slashed the technology’s price by a fifth in August and analysts said that more cuts could be on the cards.
Details including potential capital outlay is long awaited for a factory in Mexico’s northern state of Nuevo Leon that Tesla announced in March.
A senior Mexican government official said last week that the facility’s final permits could be ready in weeks and the local administration was starting infrastructure work Tesla requested.
