Tesla Stock Reversed To A Three-Week Low After Its Earnings Miss

Highlights from Tesla’s third-quarter results to 30 September

• Revenue up 9% $23.35 billion
• Adjusted earnings per share down 37% to $0.66
• Cash and investments held up 24% to $26 billion

ii’s round-up

Electric vehicle (EV) maker Tesla detailed earnings below Wall Street forecasts due to a combination of reduced vehicle prices and factory upgrade costs linked to its new cybertruck.

Third-quarter adjusted earnings fell 37% to $0.66, missing analyst hopes for $0.73, with head Elon Musk also expressing caution about both the near-term financial contribution of the cybertruck and the health of the global economy.

Shares in the Nasdaq-listed company fell by close to 5% in after-hours US trading having doubled in 2023 coming into this latest news. Strike-affected General Motors is down around a tenth this year, while Europe's Volkswagen has fallen just over 15%. The Nasdaq Composite has gained by just over a quarter year-to-date, helped by hopes for a peak in US interest rates.

Total Tesla sales for the period to the end of September rose 9% year-over-year to $23.35 billion, pushed higher by 30%-plus gains for both auto service-related sales and demand for its energy generation and storage business. Vehicle-related revenues climbed 5% to $19.63 billion, with deliveries during the quarter declining to 435,059 vehicles, down from 466,140 in the second quarter.

Intense industry competition and the hindrance to potential buyers from higher borrowing costs have convinced Tesla to reduce vehicle prices. Future management plans include building a new lower-cost factory in Mexico as well as possibly starting production in India. Tesla hopes to begin deliveries of its new cybertruck in late November.

Broker Morgan Stanley reiterated its “overweight” stance on the shares post the results, flagging Tesla as a “top pick” and highlighting an estimated fair value target price of $380 per share.

ii’s view

Started in 2003, Tesla today makes both electric vehicles and energy generation and storage systems. With a stock market value of over $750 billion, it competes against rivals such as Ford and Mercedes-Benz, each with stock market valuations under $100 billion. Chief executive Elon Musk previously added to his interests, with the acquisition of social media company Twitter, now rebranded as X, a platform he believes can assist with marketing for Tesla.

For investors, competitors such as VW, Ford, and BMW all have Tesla in their sights when it comes to EVs. The challenging economic backdrop, including higher borrowing costs to buy a car, should not be ignored. Costs generally for businesses are now elevated, the full environmental impact of battery production remains open to debate, while Tesla’s estimated price-to-net asset value (NAV) of over 15 times contrasts with estimates at under two times for many of its competitors, meaning the valuation question is unlikely to go away.

On the upside, climate change concerns remain more relevant than ever, factory numbers have increased to produce and sell more vehicles, while the geographical spread of its plants, including a relatively new German factory, has reduced shipping costs. Tesla's cybertruck is also soon to hit US roads, development of its vehicle software and network of supercharging stations continues, while sales for its energy generation and storage business also offer further potential.

For now, and despite ongoing risks, this pioneering EV manufacturer will likely retain loyal investors, while its volatility will remain popular with traders.

Positives

• Climate change concerns are growing globally
• Launching its own pick-up cybertruck

Negatives

• Rising competition from other manufacturers
• Elevated costs

The average rating of stock market analysts

• Strong hold

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