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Tesla will report fourth-quarter earnings on Wednesday night.
Patrick T. Fallon/AFP via Getty Images
Tesla
Investors in Elon Musk’s car company may see more volatility than ever before.
Everything is in flux, with investors seeking insight into demand, pricing, profit margins, production, and competition.
In terms of fourth-quarter earnings, Wall Street believes Tesla (NYSE: TSLA) will earn $1.15 per share on sales of $24.3 billion, according to FactSet. In the most recent third quarter, Tesla earned $1.05 per share on his $21.5 billion in sales.
Beating third-quarter earnings by a dime should be easy, but Tesla started discounting cars in China and the US before the year started. Demand began to weaken, particularly in the United States, as buyers began waiting for the new electric vehicle purchase tax credit to take effect.
That said, it was still a record quarter for deliveries. Tesla shipped 405,278 units in the fourth quarter, up from 343,820 in the third quarter.
Analysts also expect operating income of $4.4 billion in the fourth quarter, up from $3.7 billion in the third quarter. These estimates suggest sequential improvement in profit margins. Investors welcome the improvement in profit margins, but they will need information on what the profit margins will be in 2023.
Tesla has been cutting prices in China, the U.S. and around the world in recent weeks. Some US models are down as much as 20%. Lower prices should lead to higher sales volumes, but there is no Wall Street consensus on the impact on profits.
Current estimates for 2023 operating income range from $8.7 billion to $23.5 billion, with an average of $15.5 billion. The $14.8 billion spread is almost 100% of the current estimate. The profit range before all cuts was about 75% of the average estimate of $22.2 billion.
Investors will seek guidance from management on how this year unfolds. Tesla does not generally provide detailed financial guidance. Investors will have to wait and see what the company discloses on Wednesday.
“Investors expect auto-manufacturing profit margins to reset in the mid-20s,” wrote Oppenheimer analyst Colin Rush in a Jan. 19 research report.
Excluding the impact of regulatory credits, Tesla’s automotive gross margin has averaged around 28% over the past few quarters. Wall Street forecasts 23% automotive gross margins in 2023. Anything that looks like it has a profit margin of 23% or less is likely to disappoint and lead to a decline in the stock price.
Rusch has put a hold on Tesla’s stock and has not set a price target. Overall, Tesla’s price target has followed the stock’s decline. On Monday, Truist analyst William Stein lowered his price target to $245 from $299. He’s evaluating a buy in Tesla stock. So does UBS analyst Patrick Hummel. He lowered his price target to $220 from his $350 on Monday.
The average price target is currently around $209 per share, down about $50 since Tesla started cutting prices.
Earlier this year, the stock fell 12.2% after disappointing shipments in the fourth quarter. Then came the EV price cut, and a grateful investor sent the stock up more than 20% of his.
Entering Monday’s trading, Tesla shares are up about 8.3% year-to-date.of
S&P 500
It is about 3.5% higher.of
NASDAQ Composite
It is up about 6.4%.
The options market suggests that Tesla’s stock price will fluctuate up or down by about 10% following earnings. The stock has averaged about 8% up or down over the past four quarters.
Please contact Al Root (allen.root@dowjones.com).
