Will Shrinking Auto Margins Hurt Tesla (TSLA) in Q3 Earnings?
Tesla TSLA is set to release third-quarter 2023 results tomorrow, after the closing bell. The focal point of the electric vehicle (EV) manufacturer’s earnings release will be its vehicle production and deliveries. Though third-quarter deliveries beat our model estimates, they declined sequentially.
Notably, Tesla surpassed earnings estimates in each of the trailing 10 quarters. Will it be able to maintain the beat streak this time? Before we delve into the factors that are set to shape its upcoming results, here’s a brief snapshot of its second-quarter 2023 earnings report.
(Also read: Here's What to Expect From Tesla This Earnings Season)
Q2 Highlights
Tesla reported second-quarter 2023 earnings of 91 cents per share, which rose from the year-ago figure of 76 cents and outpaced the Zacks Consensus Estimate of 83 cents. This marked the 10th consecutive earnings beat for the company. Record deliveries and revenues, which topped expectations, resulted in this outperformance. Total revenues came in at $24,927 million, witnessing year-over-year growth of 47%. The top line exceeded the consensus mark of $24,884 million.
Tesla’s second-quarter production totaled 479,700 units (460,211 Model 3/Y, and 19,489 Model S/X), up 86% year over year and surpassing our estimate of 452,602 units. Deliveries also exceeded our forecast on stronger-than-expected demand despite high interest rates. Tesla offered discounts and other incentives in the United States to increase affordability, which translated to robust deliveries. Additionally, all trims of the Model 3/Y vehicles qualified for the full $7,500 federal tax credit under the Inflation Reduction Act in the United States during the second quarter, which bolstered sales. The company delivered 466,140 vehicles, reflecting a year-over-year jump of 83% and topping our estimate of 434,736 units.
Tesla had cash/cash equivalents and long-term debt and finance leases of $23,075 million and $872 million, respectively, as of Jun 30, 2022. The firm generated a free cash flow of $1,005 million during second-quarter 2023, which surged 62% year over year.
Q3 Deliveries Rise Y/Y But Fall Q/Q
After achieving record deliveries in the first two quarters of 2023, Tesla experienced a sequential decline in its third-quarter deliveries. The company delivered a total of 435,059 vehicles worldwide in the third quarter, surpassing our model estimate of 428,141 and representing a 26.5% increase compared to the previous year. Nevertheless, these deliveries marked a 6.6% sequential decrease from 446,140 vehicles delivered in the second quarter of 2023 due to planned factory shutdowns for an upgrade.
Tesla’s models 3 and Y are the company’s most successful EVs, accounting for most of its sales. For the quarter, Tesla delivered 419,074 of those, surpassing our forecast of 411,075 units. Also, third-quarter 2023 deliveries of models S and X came in at 15,985 units, lower than our estimate of 17,066 units.
As for production, Tesla produced 430,488 (416,800 Model 3/Y, and 13,688 Model S/X) vehicles during the quarter, up 17.6% on a yearly basis but down from 479,700 units produced in the second quarter of 2023. The metric, however, topped our projection of 415,645 units.
We expect total automotive revenues of around $21,092 million, which marks a 12.8% increase year over year but a decline from $21,268 million in the second quarter of 2023.
Additionally, Tesla slashed prices on its inventory vehicles and existing models throughout the third quarter, which is expected to have put pressure on its gross margins. We expect gross profit from the automotive segment to decline 26.4% year over year and 6.5% sequentially.
Our projection for TSLA’s third-quarter automotive gross margin stands at 18.2%, implying a decline of 1 percentage point from the second quarter of 2023 and 9.7 percentage points on a yearly basis.
Overall Earnings & Revenue Projections
Our proven model does not conclusively predict an earnings beat for Tesla as it doesn’t have the right combination of a positive Earnings ESP and a favorable Zacks Rank. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The company has an Earnings ESP of -2.74% as the Most Accurate Estimate is pegged 2 cents lower than the Zacks Consensus Estimate. Tesla currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for the to-be-reported quarter’s earnings is pegged at 73 cents per share, indicating a contraction of 30.5% on a year-over-year basis. The consensus mark has moved south by 5 cents a share over the past 30 days. The Zacks Consensus Estimate of $24.38 billion for sales indicates a 13.64% rise on a year-over-year basis.
Stocks With the Favorable Combination
While an earnings beat looks uncertain for Tesla, here are a few players from the auto space, which, according to our model, have the right combination of elements to post an earnings beat for the quarter to be reported:
PACCAR PCAR will release third-quarter 2023 results on Oct 24. The company has an Earnings ESP of +3.34% and a Zacks Rank #2.
The Zacks Consensus Estimate for PACCAR’s to-be-reported quarter’s earnings and revenues is pegged at $2.06 per share and $7.98 billion, respectively. PCAR surpassed earnings estimates in the trailing four quarters, with the average surprise being 15.2%.
Oshkosh Corp. OSK will release third-quarter 2023 results on Oct 26. The company has an Earnings ESP of +8.24% and a Zacks Rank #3.
The Zacks Consensus Estimate for OSK’s to-be-reported quarter’s earnings and revenues is pegged at $2.18 per share and $2.46 billion, respectively. Oshkosh surpassed earnings estimates in two of the trailing four quarters for as many misses, with the average surprise being 27.4%.
Cummins CMI is expected to report third-quarter 2023 results on Nov 2. The company has an Earnings ESP of +0.48% and a Zacks Rank #3.
The Zacks Consensus Estimate for Cummins’ to-be-reported quarter’s earnings and revenues is pegged at $4.70 per share and $8.19 billion, respectively. CMI missed earnings estimates in three of the trailing four quarters and surpassed once, with the average negative surprise being 5.51%.
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Cummins Inc. (CMI) : Free Stock Analysis Report
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