Tesla Q3 2023 earnings preview: what to expect amid production slowdowns and margin concerns

When is Tesla's results date?

We can expect to receive the latest figures from Tesla on Thursday, October 19th at 7:00 am AEDT after the market closes.

Tesla share price: forecasts from Q3 results

Past performance and sales drivers

Tesla managed to outperform during its last earnings release for the second quarter in July. However, it was the incentives and discounts that primarily drove sales, resulting in a drop in operating margins to 9.6% and gross profit margins to approximately 18.2%.

Production slowdown and targets

During their previous earnings call, they cautioned that production would decelerate in the third quarter due to significant factory upgrades. True to their word, production has indeed slowed. Latest figures show deliveries at 435,059, falling short of expectations, and production at 430,488. Despite this, the automaker is still targeting around 1.8 million vehicles for this year.

Pricing strategy and market competition

There have been further price cuts for each of Tesla's models this past quarter, according to cargurus.com. These reductions amount to over a third year-on-year, maintaining the company’s approach of sacrificing margins to produce more vehicles. This strategic choice will be scrutinised by those examining short- to mid-term prospects, especially considering competition in the US and China.

Meanwhile, optimists are looking forward to updates on key projects like Cybertruck production and AI development with the Dojo supercomputer, factors that led Morgan Stanley to significantly raise its share price target last month and upgrade its rating to 'Overweight'.

Financial forecasts for the next quarter

Estimates for the upcoming quarter forecast an earnings per share (EPS) of USD 0.74, a figure that has been revised downward after the disappointing delivery numbers. Revenue is expected to come in at USD 24.21 billion, not far from the USD 24.9 billion in the previous quarter but notably higher compared to the same period last year. Gross profit margins are also expected to improve but are likely to remain within the 18% range (source: Refinitiv).

Analyst consensus and share price implications

As for the analyst recommendations, the consensus appears similar to the previous quarter. There are six 'Strong Buy', 12 'Buy', a larger group of 20 'Hold', three 'Sell', and four 'Strong Sell', resulting in a slight net buy bias, which isn't as strong as the industry average. Moreover, the current share price exceeds the average price target of USD 238.79 (source: Refinitiv).

Trading Tesla’s Q3 results: weekly technical overview and trading strategies

Current technical indicators

Examining the chart below, the price is still hovering within a relatively expansive bullish trend channel. Moreover, it remains above all its primary weekly long-term moving averages (MA), even if the 100-week MA is not far away—these are bullish indicators.

Conversely, the other weekly technical indicators are generally neutral, albeit with a tinge of slight positive technical bias. The price is near the middle band; its RSI (Relative Strength Index) is above 50 but not in overbought territory; its ADX (Average Directional Movement Index) oscillates below trending levels; and in terms of the DMI (Directional Movement Index), its +DI is above its -DI, but not by a significant margin.

Long-term vs short-term trends

Overall, most of the technical indicators are neutral but remain within the longer-term bullish channel, offering a technical overview that leans more towards 'bull average' than 'stalling bull.' This is consistent with the technical classification from the last time we previewed Tesla's earnings.

While this doesn't guarantee gains, fluctuations from one end of a broad bullish trend channel to the other can influence key technical indicators. This is more apparent on the daily time frame, where the shift back towards a mid-term average renders the outlook more consolidative than bullish.

Trading strategies: conformist vs contrarian

Strategically speaking, this places 'buys' in the conformist camp and 'sells' in the contrarian camp. For those favouring the former, buying off the 1st Support is advisable only via a significant reversal, and for the latter, selling off the 1st Resistance via reversal is the strategy—always observing where the price resides within the channel.

Preparing for fundamental events

Additionally, technicals lose some of their importance as we approach a fundamental event, particularly if the actual results deviate significantly from expectations.

Tesla weekly chart with key technical indicators

Tesla weekly chart with IG client sentiment

IG client sentiment* and short interest for Tesla shares

As for IG client sentiment, it's been characterised by a strong buy bias throughout this period (see chart above, blue-dotted line representing % long, left axis). To some extent, this reflects trading within the channel established at the start of the year. Sentiment began this week at 74%, compared to last week's 77%, which was just shy of entering extreme long territory.

Regarding short interest, the reading for mid-September stood at 84,724,119, representing 2.67% of total shares and 3.07% of shares floating. This is lower than the approximately 96 million shares short when we conducted the second-quarter earnings preview (source: Refinitiv).

_{*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of the start of this week for the outer circle. Inner circle is from the start of last week.}