Chicago, IL – October 17, 2023 – Today, Zacks Investment Ideas feature highlights Tesla TSLA, Ford (F), Stellantis STLA, General Motors GM and Amazon AMZN.
Tesla EPS Preview: 5 Items to Watch
Zacks Rank #3 (Hold) stock Tesla is scheduled to report third-quarter earnings on Wednesday, October 18th, after the market closes. Year-to-date, shares of Tesla have outperformed the auto industry and the general market and are up a healthy 133%.
However, as earnings approach, Tesla’s earnings are likely to be muddled by several factors, including, deep price cuts, lower production numbers, and the unveiling of new products such as the Cybertruck and Semi.
Expectations
For the current quarter, Zacks Consensus Estimates suggest that Tesla earnings will drop 30.48% to $0.73 for the third quarter. Should Tesla meet analyst estimates of $0.73, earnings will slowdown versus both last quarter’s EPS of $0.91 and last year’s third-quarter EPS of $0.76.
Implied Options Move
The implied options move, often called the “implied move,” is a concept in the stock market related to options pricing. It represents the market’s expectation of how much a stock price will likely move after an upcoming event (in this case, TSLA’s 3rd quarter EPS). Traders can use this information to make informed decisions about their trades and manage risk in anticipation of significant market movements following earnings releases or other key events.
The options market for Tesla is currently implying a move of +/- 7.1%.Over the past three quarters, Tesla shares moved roughly 10% for the day after earnings (-9.74%, -9.75%, +10.97%).
5 Items to Watch for Q3
Margins
This quarter, Tesla dropped prices in several areas, including domestic vehicles, Chinese vehicles, and leases. Presumably, Elon Musk is lowering prices for three reasons:
1. Boost Demand – With stubborn inflation impacting consumers, price cuts can help spark demand.
2. Government Incentives – To qualify for generous government EV incentives, vehicles must be under a certain price.
3. Squeeze “The Big 3” – Ford, Stellantis and General Motors are in the middle of an ugly labor dispute with the United Auto Workers (UAW) labor union. Though Tesla is already the dominant EV player (50% market share), price cuts may make the race for EV supremacy even more lopsided.
Tesla already has some of the healthiest margins in the industry. Tesla’s gross margins are 21.49% versus 17.58% for the auto industry.
The question is, “Are investors willing to sacrifice margins for larger market share?”Elon Musk is famously a “long-term thinker” like Amazon founder Jeff Bezos. Is Musk looking to do what Bezos once did? (lower prices to the point where competing is almost impossible). As discussed in my recent commentary, Tesla prices now compete with the prices of the average new car.
Full Self-Driving Updates
According to Tesla founder and CEO Elon Musk, self-driving is the most critical problem that the company must solve for Tesla to achieve long-term success. A successful self-driving rollout would mean a ramp-up in sales, fewer accidents on the road, and the potential for “robotaxis” (more income for Tesla & Tesla customers). Investors should take Musk at his word and pay close attention to what the company says about the progress of “Full Self-Driving”. In a July talk, Musk mentioned that the EV maker was in talks to license its full self-driving technology.
Cybertruck Deliveries
Most analysts who cover Tesla expect that the company will begin delivering the highly anticipated “Cybertruck” SUV at some point in the fourth quarter. However, because Elon Musk is known to be overly ambitious with his time-frames, investors should watch any commentary on Cybertruck closely.
Can Tesla Continue to Beat Expectations?
Tesla has beaten Zacks Consensus EPS Estimates for ten straight quarters. With expectations lower than usual, can Tesla again deliver a positive surprise?
Impact of UAW strike
Because Tesla is non-unionized, the EV-king undoubtedly stands to benefit from the ongoing labor disputes. However, the magnitude of this positive catalyst is still unclear.
Conclusion
Tesla is set to report third-quarter earnings amidst a complex scenario. Earnings are likely to be affected by factors like price cuts, reduced production, and new product launches.
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