Tesla investors focus on demand issues in earnings report

Wall Street analysts are becoming increasingly concerned about the demand for Tesla vehicles in China due to its strong domestic competition from BYD, Nio Inc., and XPeng Inc., as per Reuters.

However, INQUIRER.NET reported that Tesla’s market share increased by 7% following the automaker’s report late on Wednesday.

Unfortunately, the most actively traded company on Wall Street has reportedly lost nearly 17% of its value since October 2. It revealed Q3 vehicle deliveries that fell short of expectations due to logistical difficulties hampering its record deliveries.

As consumer demand declines, a backlog of cars in Tesla’s inventory may indicate that the company produced more vehicles than it was able to sell.

According to the report, analysts still anticipate CEO Elon Musk to deliver a quarterly revenue increase of 60% and a rise in “adjusted” earnings before interest, taxes, depreciation, and amortization of 48%.

“This week and next week are just crucial and full of earnings,” said Peter Tuz, President of Chase Investment Counsel in Charlottesville, Virginia.

Meanwhile, some analysts are skeptical that Tesla can overcome an economic slowdown and keep raising prices without affecting its sales. These are primarily influenced by decades-high inflation, growing energy costs in Europe, and indications of a weaker China market.

Despite Musk’s claim that Tesla “does not have a demand problem,” the most recent delivery report revealed that 22,000 more electric vehicles were produced than were delivered to consumers in Q3. Notably, the automaker attributed the inventory increase to issues with the transportation system.

Investopedia also reported that the quarterly vehicle production released on October 2, 2022, revealed that Tesla shipped only 343,830 of the 365,923 vehicles it produced for Q3 FY 2022, suggesting a potential backlog.

Tesla Key Stats

“A top concern right now is demand in China as wait times seem to be shrinking,” RBC Capital Markets said. “Question is if this is a blip or signs of a bigger change among consumers.”

There are also worries that auto sales may slow down worldwide in the approaching quarters. Big-ticket purchases are deterred by rising interest rates and a deteriorating economic environment.

On the other hand, analysts claim that a significant element in helping Tesla make up for a potential decline in demand and increase revenue is pricing.

Since January last year, Tesla’s Model 3‘s average US selling price has increased by nearly 24%. Hopefully, it might aid the EVmanufacturer in generating record profits in the third quarter.

According to Wells Fargo, the new tax credit under Biden’s Inflation Reduction Act will certainly benefit Tesla the most. Additionally, Musk sparked speculation about a share buyback earlier this month when he replied “Noted” on Twitter to a prominent individual investor’s request for a stock buyback.

A decision like that might be profitable for Musk, Tesla’s largest shareholder with a 15% stake. It will aid him in raising money to pay for his $44 billion bid to acquire Twitter Inc. private.

According to some experts, Musk may be required to sell an additional $3 billion worth of stock to help pay for the said acquisition.

“If there is a big sale of Tesla stock by Musk after earnings, that will be a strong sign that the Twitter deal is on the cusp of closing,” said Adam Badawi, a law professor at UC Berkeley.

Nonetheless, there are numerous significant aspects involved in affecting Tesla’s performance and deliveries. 

QUARTER-ENDING REFINITIV IBES ACTUAL BEAT/EPS ESTIMATE MET/MISSED

June 30 2022 | 0.60 | 0.76 | Beat

March 31 2022 | 0.75 | 1.07 Beat

Dec. 31 2021 | 0.79 | 0.85 Beat

Sept. 30 2021 | 0.53 | 0.62 Beat

June 30 2021 | 0.33 | 0.48 Beat

March 31 2021 | 0.26 | 0.31 Beat

Dec. 31 2020 | 0.34 | 0.27 Missed

Sept. 30 2020 | 0.20 | 0.25 Beat