US earnings preview: Tesla Q1, 2023

Key dates

Wednesday, April 19, 2023
4:30pm Central Time / 5:30pm Eastern Time

Tesla is scheduled to report its first quarter (Q1) earnings after markets close.

Company profile

While the majority of buy traders will hope the electric vehicle (EV) maker will best estimates as it did for fourth quarter 2022 results, there are factors to note this time around.

There was mention back then of the “downward trajectory for many years” when it came to average sales prices, hence turning to “affordability”.

Elon Musk, its CEO, pointed out that the potential is there to produce two million cars this year provided there aren’t any “force majeure” disruptions, and while he anticipated there would be accompanying demand for that, the latest delivery numbers haven’t been as optimistic.

First-quarter deliveries were over 4% higher than the previous quarter with a stronger 422,875 print and year-on-year below the 50% goal at about 36% and weren’t strong enough to match estimates that were hoping for a higher 432K (FactSet).

The gap to production was around 18K as the total produced was 440,808 (production hardly rising q/q), and a drop in the share of deliveries for its higher-end Model S and X from 4.2% of the total to just 2.5%, roughly half the production of the two models, and raising ongoing concerns over struggles in moving supply at the upper end of its models.

Data from CPCA (China Passenger Car Association) for March of China-made Tesla EV deliveries were more optimistic in terms of growth given it was up over 19% compared to February’s deliveries.

But overall, an ongoing gap between deliveries and production means the worry isn’t so much on supply as was the case in the past, but more so on demand in the current tested environment, which usually translates into additional caution when it comes to valuing the growth stock.

An increase in deliveries shouldn’t come as a surprise given there were plenty of price cuts, with yet another one announced last week in the US and likely to signal more price cuts will be on offer as the year progresses as it attempts to reach its sales target.

Boasting higher profit margins while a strong characteristic that gives it longevity and depth in a price war against other EV makers can also mean significant growth at this stage will be driven by a drop in price, hitting revenue and if not accompanied by a drop in costs can also mean worries over profits.

It doesn’t help that price cuts were generally larger than the 4% growth in deliveries, and points to demand elasticity a seller wouldn’t want to boast about.

What to expect

That puts additional focus on the extent to which costs can be cut and overall margins, and future models that are expected to be cheaper but also less profitable to the company compared to higher-end models. We know how many they produced and delivered in a quarter swarming with price cuts, but now comes the part about how much they made with that strategy.

Expectations are we’ll get an EPS (earnings per share) reading of $0.86, with revenue at $23.3bn (source: Refinitiv). The former is less than what we saw in the first quarter of last year and as an estimate is little changed over the past two months, but the latter figure is over 20% higher than Q1 ’22 revenue.

As for analyst recommendations, there’s a big chunk of 16 opting to hold with two each in sell and strong sell territory, otherwise 13 for a buy and nine for strong buy. The average slight buy amongst them for Tesla is slightly less than recommendations seen for the overall auto and truck manufacturing sector (source: Refinitiv).

Weekly technical overview and trading strategies

Looking at it from the weekly time frame’s point of view, much of the price action has been within a large longer-term bear trend channel that’s held thus far (see chart below), with prices closer to the upper end and traders nervously noting whether it’ll hold paving the way for long-term downside continuity.

Its ADX (Average Directional Movement Index) is no longer in trending territory and the same holds for the daily time frame’s ADX reading, and the DMI (Directional Movement Index) suffering from closely huddled +DI and -DI that’s resulted in more false signals as of late.

Its RSI (Relative Strength Index) is also failing to provide a signal, on the weekly time frame more reliable in signalling a reversal when in oversold territory than overbought.

Putting it all together, the technical overview is blurred between consolidatory on weeks of relatively rangebound movement to bear average given its bear trend channel has managed to hold.

Under the former, conformist strategies would be reversals off the 1st levels (selling after reversal off 1st Resistance when prices first cross over by a sizable amount and only if it retraces back down, buying after reversal off 1st Support) and contrarian strategies breakouts anticipating further follow-through.

Otherwise, a bear average would see conformist sells off the 1st Resistance level only via significant reversal and avoiding any initial and secondary stop-outs.

Let’s not forget this is a fundamental event and technicals hold less relevance, especially if results veer far from expectations causing levels to get breached with great ease (and usually acts similar to products under a volatile technical overview where conformist strategies are breakouts), and can easily test 1st levels causing momentum-based traders to note 2nd levels as well.

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 retail trader bias, looking at the chart above, the blue-dotted line represents their sentiment as % long from the left axis (i.e., blue-dotted line at 60% in October means 60% were majority buy and 40% majority sell at the time). They’ve been majority long this entire time, the last time briefly shifting to majority sell in November 2021.

The latest print puts them in extreme buy territory at 78% today from 77% yesterday.

Short interest on the exchange according to the latest reading is 2.7% of outstanding shares (85.5m of 3.16bn), and naturally higher as a percentage of floating shares at 3.1%.

We’ve had nearly two years of relatively controlled short interest levels compared to what was witnessed back in 2019 (source: Refinitiv).

*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, outer circle as of this morning. Inner circle is client sentiment as of yesterday morning.