Tesla May Face Another Sluggish Earnings, But There Could Be Some Surprises

Tesla is set to deliver its Q3 results on Wednesday post-market, marking the first of the Mag 7 earnings this season. Following a disappointing Robotaxi Event, investors now focus more on core auto business, earnings, and outlook. Additionally, progress on FSD and potential partnerships with Musk's xAI will be crucial.

What to Expect:

Revenue: $25.4 billion, up 9% year-over-year

non-GAAP EPS: $0.51, down 23% year-over-year

Tesla reported it delivered 462,890 vehicles during the period, up 6.4% QoQ, marking the first quarter of delivery growth this year. However, this is slightly below the estimated 463,000 vehicles.

Wall Street now believes overall delivery for the year will approximate last year's level, or 1.81 million vehicles. However, Tesla's strategy of lowering prices to push sales amidst intense competition and the ramp-up of Cybertruck production is expected to erode the EV giant's profitability.

Tesla is expected to report generally in-line third-quarter headline results this week, with investors likely to focus on Chief Executive Elon Musk's remarks on the electric vehicle demand outlook, Wedbush Securities said in a Monday client note.

While many investors left the Robotaxi Day clearly wanting more details on the broader autonomous and (artificial intelligence) strategy at Tesla, we would expect Musk to address some of the timing/specifics around its (Full Self-Driving) and Cybercab strategy on the conference call this week, Wedbush analysts led by Daniel Ives wrote in the note. He anticipates Tesla to possibly give an update on the timing for the vehicle, which is expected to launch in the middle of next year.

Ives said Tesla should be able to deliver 1.8 million vehicles in 2024, and that should rise to more than 2 million vehicles in 2025, "but margins will be a key focus on the conference call, he added. Ives rates Tesla as a buy, with a target price of $300, representing more than 38% upside.

Barclays believes the focus is now back on fundamentals. With Tesla's Robotaxi Day passed, we believe the focus for Tesla at least for now shifts back to fundamentals, the bank analyst Dan Levy said in a note.

After a run of sharply negative revisions to earnings estimates, Tesla estimates have largely stabilized. Volumes are expected to be flat year-over-year, margins have troughed and are set to improve, regulatory credit revenue can be a solid boost as other OEMs rely on Tesla to achieve compliance, Tesla Energy is generating solid growth, and operating expenses may trend lower for now as Tesla realizes the cost savings from headcount reductions, Levy said.

He also pointed out the potential Model 2 rollout. We wouldn't dismiss the notion that Tesla could forgo a 'Model 2.5,' instead focusing its resources on rolling out the [autonomous vehicle] strategy — such a move would likely be treated quite negatively by the stock, Levy said. He rates Tesla at Equal Weight with a $220 price target.

Investors will also focus on Tesla's FSD progress. Last month, Tesla said it expected to launch FSD in Europe and China in the first quarter of 2025, but people familiar with the matter said the rollout progress is not expected to mirror the speed the company itself planned. Additionally, a potential partnership between Tesla and Musk-backed xAI is being closely watched, as the vehicle may introduce more AI features.

Tesla shares have dropped over 12% so far this year, lagging behind the S&P 500 performance, due to sluggish sales and the lack of surprises at the Robotaxi launch.