tesla earnings

Tesla (NYSE: TSLA) stock is trading lower in early US price action today even as the broader markets are trading sideways. The company released its third-quarter earnings yesterday which has raised concerns over demand for the EV (electric vehicle) giant.

It’s now three years since Tesla posted a surprise profit in Q3 2019 and said that it would be sustainably profitable. The company has delivered on the promise and has posted a profit in every quarter since then, including in the first half of 2020 when the automotive industry posted massive losses due to the lockdowns.

In the third quarter also, its GAAP net profit of $3.33 billion was a new record. However, its revenues of $21.45 billion fell short of estimates. Also, its automotive gross profit failed to impress markets. The company also lowered its 2022 delivery guidance and said that the delivery growth in 2022 would be below 50%.

For the last many quarters, Tesla has said that its deliveries would rise at a CAGR of 50% over the foreseeable future. During the third quarter earnings call, it said that while in some years the delivery growth would be below 50%, in others it would surpass that number, bringing the average to 50% or higher.

Is Tesla Facing Demand Concerns?

This year, BYD has surpassed Tesla to become the largest seller of new energy vehicles. During the Q3 earnings call, Tesla’s CEO Elon Musk said that the company has received several questions related to demand in recent weeks.

In his remarks, Musk said “I can’t emphasize enough, we have excellent demand for Q4, and we expect to sell every car that we make for as far in the future as we can see. So, the factories are running at full speed, and we’re delivering a recovery make and keeping operating margins strong.”

He added that the fourth quarter is looking “extremely good” and the company would have an “epic” end to the year. He also refuted that Tesla would lower production. Musk said, “we’re very pedal to the metal come rain or shine. So, we are not reducing our production in any meaningful way, recession or not recession.”

Notably, Musk is among the business leaders who have talked about the possibility of a recession in the US. During the Q3 earnings call, he downplayed recession risks in North America. Musk, however, said that the Fed is making the mistake of overtightening.

Cathie Wood of ARK Invest also made similar comments in an open letter to the Fed. “Bond king” Jeffrey Gundlach also echoed similar views. He is bullish on bonds and advises investors to invest in bonds.

Elon Musk on Tesla Buybacks and Valuation

Musk is known to make flamboyant forecasts during earnings calls. During the third quarter earnings call, Musk said that Tesla’s market cap would surpass the combined market cap of Apple and Saudi Aramco, the world’s largest and second-largest company respectively.

He also said that Tesla might consider a buyback in 2023. Usually, companies take board approval before announcing a buyback. While Musk did admit that the buyback is contingent upon board approval, announcing it before the approval is a deviation from the generally followed practice.

Bernstein Says Musk was ‘Dismissive” On the Earnings Call

Bernstein analyst Toni Sacconaghi wasn’t too impressed with Tesla’s earnings call. “Answers to many questions on the earnings call were curt and almost dismissive, with CEO Musk instead repeatedly making very bold prognostications about Tesla’s future and capabilities,” he said in his note.

Sacconaghi also expressed concern over the demand for Tesla cars. He said, “Lead times for cars have come down dramatically, especially in China, and we worry about weaker consumer spending and incremental competition.” He added, “We believe that Tesla’s order backlog declined in the quarter, pointing to orders lagging current production rates.”

Meanwhile, some other analysts, especially Morgan Stanley maintained their buy rating on Tesla stock. After President Boe Biden signed the Inflation Reduction Act of 2022, several Wall Street analysts turned on Tesla.

Tesla cars would now be eligible for the $7,500 EV tax credit from 2023 which would help the company raise car prices.

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