Margins and competition in focus as Tesla (TSLA) gears up for Q4 earnings

Despite challenging market conditions, Tesla Inc. (NASDAQ: TSLA) strengthened its foothold in the electric vehicle market last year, with the much-awaited Cybertruck launch adding value to the brand. However, it was not a smooth ride for the EV giant as it faced multiple headwinds including elevated interest rates, muted demand, and growing competition.

The Austin-headquartered company’s stock had a weak start to 2024, and it has lost about 15% since then. In 2023, the shares went through a series of ups and downs and gained about 58%. A good thing about the recent dip is that it created an opportunity to own the stock which is considered expensive.

The Tesla Advantage

The company’s cost advantage, due to heavy investments in the business over the years, enables it to effectively deal with competition. However, lingering supply chain issues and regulatory uncertainties will remain a challenge this year as far as maintaining the growth momentum is concerned. The market will be closely following next week’s earnings, looking for updates on the company’s long-term goals of achieving self-driving capabilities and launching robotaxies.

Tesla’s bottom line came under pressure after it reduced prices last year, and the trend will likely continue this year. Fourth-quarter results are expected to come on January 24, at 4:10 p.m. ET, amid expectations for a dip in earnings to $0.74 per share from $1.19 per share last year. Meanwhile, market watchers see a modest increase in Q4 revenues to $25.57 billion. In the previous quarter, both earnings and revenues missed estimates.

Record Production

There has been a consistent uptick in vehicle production and deliveries lately, and the numbers reached record highs in the second quarter. Preliminary estimates show that the company exceeded its 2023 targets by delivering around 1.81 million units. However, Tesla’s struggles with profit remain a concern for its stakeholders.

CEO Elon Musk said at the Q3 earnings call, “We will continue to invest significantly in AI development as this is really the massive game changer, and I mean, success in this regard in the long term, I think has the potential to make Tesla the most valuable company in the world by far. If you have fully autonomous cars at scale and fully autonomous humanoid robots that are truly useful, it’s not clear what the limit is. Regarding energy storage, we deployed four-gigawatt hours of energy storage products in Q3.”

Profit Dips

In the September quarter, automotive sales grew 4% from last year, driving up total revenues by 9% to $23.35 billion. Among the other business segments, Energy Generation and Services expanded in double digits, while Automotive Leasing revenues declined 21%. Earnings per share, excluding one-off items, fell 37% to $0.66 in Q3, reflecting the price-related strain on margins.

After slashing prices in the US and China, the company this week lowered prices in Europe also. Earlier, the management revealed plans to temporarily stop production at the Berlin plant citing the non-availability of components, mainly due to the Middle East conflict. Meanwhile, Tesla is facing stiff competition from the likes of BYD, which surpassed its sales record recently.

On Friday, TSLA traded higher in the early hours of the session, after opening lower. During the week, it stayed below the 52-week average.