Electric vehicle giant Tesla (NASDAQ:TSLA) is scheduled to report its third-quarter results after the market closes on Wednesday, October 18. Investors remain focused on the company’s margins, given that CEO Elon Musk continues to slash prices to spur volumes amid growing competition and macro pressures. Analysts expect the company’s Q3 2023 earnings to decline compared to the prior-year quarter due to margin contraction.
Expectations from Tesla’s Q3 Earnings
Tesla reported better-than-anticipated Q2 2023 results. However, the company’s operating margin declined by a staggering 493 basis points year-over-year to 9.6%. During the Q2 earnings call, Musk dismissed worries about near-term margin variances, as he remains confident about the company’s vehicle autonomy technology driving long-term growth.
As cautioned by the company, Tesla’s Q3 deliveries declined 6.7% compared to the second quarter due to planned shutdowns to upgrade factories. Still, Q3 2023 deliveries were up 26.5% compared to the prior-year quarter.
Analysts expect the company’s Q3 2023 revenue to rise 13% year-over-year to $24.3 billion. However, they project adjusted earnings per share (EPS) to decline by about 30% to $0.73 due to lower margins.
Is Tesla a Buy or Sell Right Now?
Last week, Jefferies analyst Philippe Houchois lowered his price target for Tesla stock to $250 from $265, while maintaining a Hold rating. The analyst commented that tracking Tesla’s fundamentals over the past few months “felt a bit like watching paint dry.” He argued that additional margin erosion in Q3 2023 and uncertain growth in 2024 raise questions on whether the EV maker’s earlier profit edge was “structural or a timing difference.”
Houchois contended that while non-auto features such as full self-driving (FSD), storage, and Optimus support TSLA stock, they cannot be yet seen as substitutes to speed and hyperscale in Tesla’s auto business.
On Monday, Piper Sandler analyst Alexander Potter lowered his price target on Tesla to $290 from $300 and reiterated a Buy rating on the stock. Potter updated his model to reflect TSLA’s Q3 deliveries report and revised earnings expectations, with his estimates moving slightly lower.
Potter thinks that Cybertruck and other growth initiatives “are on the horizon,” and there is a reasonable possibility that Tesla’s margins will bottom in Q3 2023. That said, the analyst wouldn’t be surprised if TSLA stock “trades sideways” in the months ahead.
Coming to 2024, Potter anticipates growth in deliveries to slow before reaccelerating. However, he believes that this optimism is already baked into the Street’s estimates.
With 12 Buys, 14 Holds, and four Sells, Tesla stock earns Wall Street’s Moderate Buy consensus rating. The average price target of $258.38 implies that the stock could be range-bound from current levels. TSLA shares have rallied 106% year-to-date.
Insights from Options Trading Activity
TipRanks now presents options activity to help investors plan their trades ahead of earnings releases. Options traders are pricing in a +/- 6.03% move on Tesla’s earnings. TSLA shares have averaged a (1.3)% move in the last eight quarters. In particular, the stock fell 9.7% in reaction to Q2 2023 results.
The anticipated move is determined by computing the at-the-money straddle of the options closest to the expiration after the earnings announcement.
Learn more about TipRanks’ Options tool here.
Conclusion
Wall Street expects Tesla’s margins to continue to decline in the third quarter and drag down earnings. Investors will look forward to Musk’s commentary on Cybertruck, the competitive landscape, and the margin trajectory. They would also pay attention to any comments on the impact of the ongoing UAW strike that is severely hurting rivals Ford (NYSE:F), General Motors (NYSE:GM), and Stellantis (NYSE:STLA).
