Here Is What Wall St. Experts Are Saying About Tesla Ahead Of Earnings

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Tesla (TSLA) is expected to report results on its fiscal third quarter on Wednesday, October 18, with a conference call scheduled for 5:30 pm EDT. What to watch for:

IMPORTANT CONFERENCE CALL FOR MUSK: In a research note ahead of earnings, Wedbush notes that the Street will be laser focused on the margin performance and overall outlook for Q4 on the heels of a soft delivery number seen earlier this month. The Street is expecting total revenues and EPS of $24B and 73c with automotive gross margins, ex credits, likely in the ~17% range, the firm adds. With the vast majority of price cuts now in the rearview mirror and the factory shutdowns/ upgrades completed, Wedbush believes gross margins should expand from these levels with Q3 marking a trough period. The Street has shown patience but the time to see a line in the sand for the price cuts is now here, and investors will be listening for Musk to discuss the philosophy around price cuts going forward especially in the U.S. and China, the firm adds. The price war in China is a high stakes poker game for Tesla as so far the "volumes over margins" thesis has worked well to gain market share, although this trend cannot continue at this pace into 2024 with sacrificing margins for volumes.

Wedbush believes this is an important conference call for Musk and the Tesla team to communicate the pricing/margin strategy and demand outlook into Q4 and beyond at this crucial time in the EV market share battle globally. The firm maintains an Outperform rating on the shares with a price target of $350.

'SIDEWAYS' TRADING: On Monday, Piper Sandler lowered the firm's price target on Tesla to $290 from $300, but kept an Overweight rating on the shares. The firm updated its model to reflect the recent disclosure of Q3 delivery results, as well as updated expectations for earnings. Piper's estimates are moving slightly downward as a result of these changes. Cybertruck and Tesla's other growth initiatives "are on the horizon," and there is a reasonable likelihood that its margins will bottom in Q3, the firm tells investors in a research note. Still, Piper wouldn't be surprised if Tesla "trades sideways, at best, in the coming months." Looking into 2024, the firm says the company's' delivery growth will likely slow before reaccelerating, but it believes this is already reflected in Street estimates.

Earlier this month, Jefferies also lowered the firm's price target on Tesla to $250 from $265, while keeping a Hold rating on the shares. In the last few months, tracking Tesla fundamentals "has felt a bit like watching paint dry" as more margin erosion in Q3 and uncertain growth in 2024 "raise questions whether Tesla's earlier profit edge was structural or a timing difference," the firm told investors. Non-auto ventures like full self-driving, storage and Optimus can support shares, but these "are not yet substitutes to speed and hyperscale in the auto business," said Jefferies.

Meanwhile, Wells Fargo lowered the firm's price target on Tesla to $260 from $265, keeping an Equal Weight rating on the shares ahead of quarterly results. The firm notes the company missed consensus Q3 deliveries, and says it expects the weaker volumes and continued price cuts to drive Q3 auto gross margin ex. credits to 16.3% vs. VA consensus of 17.9%.

PRICE CUTS: Early this month, Tesla lowered the price on its Model 3 rear-wheel drive sold in the U.S. to $38,990 from $40,240 and also lowered prices for the Model 3 long-range and performance cars, according to The Wall Street Journal's Sherry Qin. Tesla, which also lowered the price on its Model Y long-range vehicle and performance model, has cut prices for its U.S. vehicles several times this year, the report noted.

Commenting on the news, BofA noted that the company has been regularly adjusting prices across its different vehicles based on market conditions. The firm thinks this latest round of price cuts is likely to reinvigorate investor concerns on whether demand for Tesla vehicles is fading. This is particularly the case after Tesla reported Q3 deliveries that were about 15% below consensus on the Model S/X and 4% below on the Model 3/Y. BofA has a Neutral rating on the shares with a price target of $300.

Q3 DELIVERIES: Tesla stated that, "In the third quarter, we produced over 430,000 vehicles and delivered over 435,000 vehicles. A sequential decline in volumes was caused by planned downtimes for factory upgrades, as discussed on the most recent earnings call. Our 2023 volume target of around 1.8 million vehicles remains unchanged." The company reported deliveries of 435,059 vehicles and production of 430,488 vehicles.

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