Important takeaways from Tesla’s Q3 2023 report

Shares of Tesla Inc. (NASDAQ: TSLA) suffered a sharp fall after the EV giant reported weaker-than-expected results for the third quarter and issued cautious guidance. After experiencing fluctuations since the beginning of the year, the stock price has returned to where it was 12 months ago. In the post-earnings conference call, CEO Elon Musk warned of a growth slowdown and potential delay in reaching mass production for Cybertruck, the company’s battery-powered full-size pickup.

Price Cut

Tesla’s unimpressive sales and weak margins can be linked to elevated interest rates, macro uncertainties, and geopolitical tensions, among others. Recently, the company reduced the prices of its vehicles to boost sales, and it is likely to go for more cuts. While the company aims to increase volumes through price cuts, its margins will likely remain under pressure. In the most recent quarter, gross margin declined by more than 700 basis points to 17.9% and missed estimates.

The company is betting on Cybertruck to regain momentum, with the much-hyped pickup expected to be rolled out soon. However, it would be a difficult task to reach volume production and turn cash flow positive due to the challenges involved in mass-producing the vehicle. Meanwhile, the energy business is growing steadily and generating better margins than the auto division.

AI Push

Tesla, which has been a frontrunner in the AI race, plans to continue investing in the technology as it targets to achieve full self-driving capabilities. The aggressive expansion would result in a spike in capital expenditures. Commenting on interest rate hikes, Musk in his post-earnings interaction with analysts said that the current rate environment would make it harder for consumers to purchase cars. Meanwhile, the CEO reaffirmed his focus on ramping production and maintained the target of 1.8 million vehicle deliveries.

“…We continue to focus on ramping production while maintaining positive cash flow, and we continue to target and expect to have around 1.8 million vehicle deliveries, as stated earlier this year. The Tesla AI team is, I think, one of the world’s best, and I think it is actually by far the world’s best when it comes to real-world AI. I’ll say that again. Tesla has the best real-world AI team on earth, period, and it’s getting better,” said Musk.

Earnings Miss

The Austin-based car maker reported revenues of $23.4 billion for the third quarter, which is up 9% year-over-year. It produced a total of 430,488 vehicles during the three-month period and delivered 435,059 units, which is lower than the prior-quarter numbers.

September-quarter earnings, adjusted for one-off items, declined to $0.66 per share from $1.05 per share a year earlier. Unadjusted net income came in at $1.85 billion or $0.53 per share, compared to $3.29 billion or $0.95 per share in the corresponding period of 2022. Both earnings and sales fell short of Wall Street’s expectations, unlike in the previous quarter when the numbers topped expectations.

The post-earnings downturn continued in the following sessions and Tesla’s stock opened lower on Monday. Meanwhile, it is up an impressive 80% since the beginning of the year.