Tesla (TSLA) shares moved higher Tuesday ahead of the clean energy carmaker’s third quarter earnings after the closing bell, with investors focused on narrowing margins, uncertain demand and the myriad distractions surrounding CEO Elon Musk.
Hot production numbers from China where Tesla re-started its Shanghai giga factory following scheduled maintenance in July, helped third quarter deliveries hit 343,830 units for the three months ending in September, a 42% year-on-year increase and the highest total ever recorded for the Texas-based automaker but modestly below analysts’ forecast.
As a result, Tesla is expected to report a bottom line of $1 per share after the close of trading today, up from 62 cents over the same period last year, on record revenues of $21.96 billion.
Demand, however, is expected to wane over the final months of the year as China, the world’s biggest EV market, remains choked by Beijing’s ‘zero Covid’ policies and countries in Europe and north America pull back on big-ticket spending amid looming recession fears and the ongoing surge in energy prices.
Investors are also likely to focus on the group’s profit margins, which slipped to 27.9% over the three months ending in June amid rising raw material and energy costs that offset what CEO Elon Musk described as “embarrassingly high” EV prices.
“Tesla has moved from being a premium brand to an average brand when judged on average selling prices as Tesla is now firmly in at the same average price as Ford and GM in the US,” said Saxo Bank equity strategist Peter Garny. “Its gross margins when factoring out R&D costs of goods sold for other carmakers is only the 11th best.”
Tesla’s end-of-year forecast will also prove critical for the stock’s post-earnings performance, with investors looking for either a reiteration or an improvement of its summer estimate that deliveries will grow 50% from 2021 levels.
That implies a target of 1.4 million vehicles for the full year, a figure that Tesla CFO Zachary Kirkhorn said has become “more difficult but remains possible with strong execution.”
Other items that could be addressed on the conference call, should Musk participate, will be the location of its next gigafactory, which he hinted earlier this year could be in Canada. Musk may also expand upon an October 6 Tweet that suggested the start of Tesla semi truck production. PepsiCo (PEP) which reserved 100 orders of the new truck in 2017, said it expects to take delivery in early December.
Tesla also faces the specter of a big share sale from Musk, who may need to raise an extra $3 billion to $8 billion to fund his portion of the planned $44 billion takeover of Twitter, which he indicated earlier this month he plans to complete despite concerns over the level of fake accounts allegedly found on the social media platform.
Tesla shares were marked 1.3% higher in pre-market trading to indicate an opening bell price of $223.00 each, a move that would still leave the stock down around 10% from the time it released second quarter earnings on July 20.
Short interest in the stock remains elevated, as well, with data from S3 partners this week indicating bets of around $13.3 billion, or 2.35% of its free-float remaining outstanding.