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Tesla Earnings Preview: Can TSLA Stock Get Back to the Fast Lane?

Tesla’s TSLA Q3 earnings on October 19 will provide essential insights into Tesla’s outlook and its room for growth within the auto industry. The EV market is expected to post a 20% CAGR through 2030, as every major automaker races to catch up to Tesla.

The current market environment could certainly dent EV growth and slow the revolution. The gem of the Auto industry has almost unanimously been Tesla, and the company’s growth alone affects the expansion of the Electric Vehicle market.

Trading 46% from its 52-week highs, investors will want to see if Tesla continued to see delivery growth during the quarter. More importantly, Wall Street needs to make sure its guidance and outlook for deliveries showcase continued growth in Q4 and FY23. This is also crucial to the expansion and reemergence of the auto industry with TSLA controlling 70% of the EV market share.

Shanghai Optimism

Tesla’s Q2 deliveries were up 27% YoY. The delivery growth was solid considering Tesla’s Shanghai operations were shut down for much of the quarter.

Shanghai, China’s largest city closed most of its businesses during Q2 due to Covid-19 fears. This leads to much optimism going into Q3 earnings as the Shanghai factory still ended the second quarter with a record monthly production level. The factory also has the highest installed annual capacity at 750,000 vehicles.

Overall operating income during Q2 also improved YoY to $2.5 billion. This resulted in a 14.6% operating margin, which the company stated was the highest in the industry. With the Shanghai factory back online, Tesla believes this could continue after seeing an overall record gross profit during Q2. Investors will hope demand during Q3 matches Tesla’s increased production.

Specifically, investors hope Tesla can reach its goal of achieving 50% average annual growth in vehicle deliveries over a multi-year horizon. Full production at the Shanghai factory could help the company reaffirm this goal as part of its delivery guidance for FY23.

While shutdowns in Shanghai appear to be in the past, investors will want more insight into other headwinds the company faces such as manufacturing challenges related to global supply chain disruptions, labor shortages, and logistics complications.

Performance

Tesla is down -36% year to date, with a large leg of its fall coming during the second quarter as inflation concerns were compounded by the Shanghai factory shutdown. Despite the large decline over the last year, Tesla shares are still up an impressive 1,225% over the past three years to crush the benchmark and its peer groups -3%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Tesla has posted earnings surprises for six consecutive quarters with the stock having a history of big movements after reporting. The movement in TSLA shares after quarterly reports largely depends on the company’s guidance, with a focus on deliveries to show continued growth.

Outlook

The Zacks Consensus Estimate for TSLA’s Q3 earnings is $0.95 per share, which would represent a 53% increase from Q3 2021. Sales for Q3 are also expected to be up 62% at $22.28 billion. Estimates for the period are slightly down from $0.96 per share at the beginning of the quarter.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Year over year, TSLA is expected to post 77% earnings growth in 2022, with FY23 earnings set to climb another 31%. Solid top line growth is also expected, with FY22 sales projected to climb 57% and another 40% in FY23 at $118.88 billion.

Tesla recently reported vehicle production of 365,923 vehicles during the third quarter which would represent a 53% increase from Q3 2021. Even better, 343,830 vehicles were delivered in Q3 so far, which would represent a 42% increase from Q3 2021.

Valuation

Currently trading around $220 a share, TSLA has a P/E of 54.7X. This is much higher than the industry average of 10.3X. However, Wall Street has historically been willing to pay a high premium for Tesla shares as its growth rate has trumped traditional auto giants like General Motors GM and Ford F.

Plus, Tesla shares trade much lower than their highs earlier in the year of 307.1X and the median of 108.3X. Even better, TSLA trades very reasonably when considering its absurd high of 45,336X over the last decade and the median of 238X.  

Bottom Line

Tesla’s third quarter earnings have been much anticipated with inflation expected to slow consumer demand. The company’s guidance and outlook can greatly impact the broader auto industry as well. Investors will want to see if TSLA can post a 7th consecutive earnings beat and more importantly give positive guidance despite the current market downturn and tougher operating environments.

TSLA currently lands a Zacks Rank #3 (Hold) with its Automotive-Domestic Industry in the bottom 43% of over 250 Zacks Industries. However, TSLA trades at a far better valuation than it has in the past with growth prospects still intact. The average Zacks Price Target also suggests 39% upside from current levels.


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