TSLA Earnings Preview: Auto gross margins in focus

Tesla (TSLA) is set to report its Q3 2024 earnings today after the market close, with an earnings call scheduled for 5:30 p.m. ET. The FactSet consensus estimates place Tesla's Q3 earnings per share (EPS) at $0.59 and revenue at $25.47 billion. This quarter's delivery and production numbers have already been pre-announced, with Tesla delivering 462,890 vehicles and producing 469,796 in Q3, slightly missing expectations due to shortfalls in Model S/X and Cybertruck deliveries.

A key focus for investors will be Tesla's automotive gross margin, which has been under pressure due to aggressive price cuts in the face of competition and economic headwinds in key markets like China, the U.S., and Europe. Tesla's automotive gross margin dropped to 14.6% in Q2, a significant decline from 27.9% in the same period last year. Analysts expect Q3 margins to hover around the 17% mark, but any further erosion could weigh on investor sentiment, particularly as the company continues to offer promotions like discount financing without requiring Full-Self Driving (FSD) purchases.

Tesla’s long-awaited Robotaxi event, held earlier in October, was expected to provide a significant growth catalyst but ultimately disappointed, contributing to a 15% drop in the stock since the event. Investors were disheartened by the realization that actual production for Robotaxi is likely still two or more years away. This delay raises questions about Tesla’s ability to leverage its AI and autonomous driving technology as near-term growth drivers, making this a critical area to watch for any updates during the earnings call.

Additionally, Tesla’s energy business has been a bright spot in recent quarters, with energy storage deployment reaching 6.9 GWh in Q3, a notable jump from 4.0 GWh a year earlier. This segment helped Tesla avoid back-to-back quarterly revenue declines in Q2, and investors will be watching to see if this momentum continues as it plays a growing role in offsetting weaknesses in the automotive segment.

Finally, Tesla’s guidance for 2024 and beyond will be crucial. Investors are keen to hear updates on the production timeline for the new Model 2 vehicle, which Tesla previously said would begin in the first half of 2025. With Tesla missing EPS expectations for the past four quarters, avoiding a fifth consecutive miss could be a positive catalyst for the stock, which has already been beaten down by nearly 19% since the end of September.