Tesla’s (TSLA) 10 consecutive quarter streak of Wall Street beats snapped as it reported lower-than-expected earnings for the third quarter of 2023.

Based on this report delivered three weeks ago, Wall Street analysts have steadily lowered their growth estimates, pushing TSLA into the cellar of the Zacks Rank.

The electric vehicle (EV) behemoth reported earnings per share of 66 cents for the quarter under review, which declined from the year-ago figure of $1.05 and also missed the Zacks Consensus Estimate of 72 cents.

Throughout the third quarter, Tesla slashed prices on its inventory vehicles and existing models, which have adversely impacted profits. Total revenues came in at $23,350 million, witnessing year-over-year growth of 9%.

The top line, however, fell short of the consensus mark of $24,381 million.

Tesla’s operating margins dipped 964 basis points year over year to 7.6% in the quarter under discussion and also lagged our estimate of 7.9%. The underperformance can be attributed to the high costs involved in scaling up the production of new battery cells, the Cybertruck, and other large projects.

Continued reductions in average selling prices (ASPs) for models also weighed significantly on the margins.

Tesla has been offering discounts and other incentives in the United States to increase affordability and boost deliveries. Notably, all trims of the Model 3/Y vehicles qualify for the full $7,500 federal tax credit under the Inflation Reduction Act in the United States.

Nevertheless, even with these measures, Tesla's share of the EV market in the United States decreased from 60% in the first quarter to 50% in the third quarter, according to data from Kelley Blue Book.

Management stuck to its target of around 50% growth in deliveries in the foreseeable future. For 2023, it expects deliveries to reach 1.8 million units.

Key Takeaways

Tesla’s third-quarter production totaled 430,488 units (416,800 Model 3/Y, and 13,688 Model S/X), up 18% year over year and surpassing our estimate of 415,645 units. The company delivered 435,059 vehicles, reflecting a year-over-year rise of 27% and topping our estimate of 428,141 units.

The Model 3/Y registered deliveries of 419,074 vehicles, marking year-over-year growth of 29% and outpacing our projection by 7,999 units. Deliveries of the Model S/X totaled 13,688 units, down 31% from the year-ago levels and below our estimate of 17,066 units.

Total automotive revenues of $19,625 million were up 5% year over year and beat our estimate of $21,092 million. The reported figure also included $554 million from the sale of regulatory credits for electric vehicles, which increased 93.7% year over year.

Automotive sales, excluding revenues from leasing and regulatory credits, totaled $18,582 million, missing our projection of $19,949 million on lower-than-expected ASPs.

Automotive gross profit came in at $3,668 million. Automotive gross margin came in at 18.6%, down from 27.9% reported in third-quarter 2022 but topping our forecast of 18.2%. This can be attributed to lower-than-expected cost of automotive sales. The metric came in at 15,957 million, below our projection of 17.256 million.

Energy Generation and Storage revenues came in at $1,599 million in third-quarter 2023, higher than the year-ago quarter’s figure of $1,117 million and beating our estimate of $1,570 million.

Notably, energy storage deployments increased 90% year over year to 4 GWh, thanks to the ramp-up of the Megapack factory in California, but also topped our projection of 3.86 GWh.

Solar deployments, however, declined both on a sequential and yearly basis amid high interest rates and the end of net metering in California. The metric came in at 49 MW, lower than our forecast of 103.8 MW.

Services and Other revenues were $2,166 million, up 31.6% year over year but missing our estimate of $2,351 million. Supercharging, insurance and body shop & part sales drove growth on a year-over-year basis.

Financials

Tesla had cash and cash equivalents of $26,077 million as of Sep 30, 2023, compared with $22,185 million on Dec 31, 2022. Net cash provided by operating activities amounted to $3,308 million in third-quarter 2023. Capital expenditure totaled $2,460 million in the quarter under review.

Tesla generated a free cash flow (“FCF”) of $848 million during the reported quarter, which declined from $3,297 million generated in the year-ago period. Long-term debt and finance leases, net of the current portion, totaled $2,426 million, up from $1,597 million on Dec 31, 2022.

Key Metrics

While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expectations to determine their next move, some key metrics always offer a more accurate picture of a company's financial health.

Since these metrics play a crucial role in driving the top- and bottom-line numbers, comparing them with the year-ago numbers and what analysts estimated about them helps investors better project a stock's price performance.

Here is how Tesla performed in the just reported quarter in terms of the metrics most widely monitored and projected by Wall Street analysts:

Total vehicle deliveries: 435,059 versus 439,208 estimated by seven analysts on average.

Model S/X deliveries: 15,985 compared to the 16,872 average estimate based on five analysts.

Model 3/Y deliveries: 419,074 versus 425,039 estimated by four analysts on average.

Solar deployed: 49 MW compared to the 84.83 MW average estimate based on two analysts.

Storage deployed: 3,980 MWh versus the two-analyst average estimate of 3,926.66 MWh.

Revenues- Energy generation and storage: $1.56 billion versus the eight-analyst average estimate of $1.63 billion. The reported number represents a year-over-year change of +39.6%.

Revenues- Automotive sales: $18.58 billion versus the eight-analyst average estimate of $20.61 billion.

Revenues- Services and other: $2.17 billion compared to the $2.19 billion average estimate based on seven analysts. The reported number represents a change of +31.7% year over year.

Revenues- Automotive regulatory credits: $554 million compared to the $324.93 million average estimate based on five analysts. The reported number represents a change of +93.7% year over year.

Revenues- Automotive leasing: $489 million versus the five-analyst average estimate of $597.34 million. The reported number represents a year-over-year change of -21.3%.

Total Automotive Revenue: $19.63 billion versus the four-analyst average estimate of $19.42 billion. The reported number represents a year-over-year change of +5%.

Gross profit- Total Automotive: $3.67 billion versus the six-analyst average estimate of $3.80 billion.

Bottom line

As Tesla plans to dominate the EV market by slashing prices on its vehicles, this trend may end next year and the margins bottom. Until then, investors remain cautious about a turnaround.

The Zacks Rank will let you know.

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