Tesla Earnings Slide 37%; Cybertruck Coming But Elon Musk Issues This Warning

Tesla (TSLA), reported earnings and revenues that were lower than expected late Wednesday. Elon Musk, the CEO of Tesla, has lowered expectations. TSLA shares fell in Wednesday's regular session.

Tesla announced Wednesday that its third-quarter profits fell by 37%, to 66 cents a share. This is the lowest earnings in two years. Quarterly revenue increased by 9%, to $23.35 Billion. Tesla's gross margin fell to 17.9%, a 719 basis point drop.

Wall Street predicted that Tesla's EPS would drop by 30%, to 73 cents. Revenue would increase 13% to $24,18 billion. Analysts expected Tesla's profit margins to stay below the "floor", as it is called, amid fears of more price cuts in 2023.

Tesla announced Wednesday that its operating costs have increased due to the Cybertruck and artificial intelligence initiatives, among other projects. The company said that the Cybertruck was in pilot production, and that it "remains on course for initial deliveries this season," with the Cybertruck's first deliveries scheduled for November 30.

Musk, however, warned investors about the Cybertruck during his Q3 earnings call on Wednesday.

Musk said on Wednesday, "I want to temper the expectations for Cybertruck." It will be a year or 18 months before Cybertruck becomes a major cashflow contributor.

Musk stated that there would be "enormous" challenges in achieving volume production of the Cybertruck. On the Q3 call, he said that Tesla would end up producing about 250,000 Cybertrucks per year. Musk's best guess was that Tesla would reach this output in 2025.

Cybertruck is the first new vehicle from Tesla since Model Y was launched in early 2020. Tesla has not yet released pricing or other key specifications that could affect Cybertruck demand.

The global EV titan also stated that it continues to make progress on its next generation platform. Tesla has been mostly silent about its next-generation car since the Tesla Investor Day in early March. The vehicle will be likely produced in its new Mexico plant. Tesla teased the silhouette of a car at its annual shareholder meeting.

Musk said Wednesday that Tesla has begun laying the foundations for its Mexico facility, but with a few caveats.

Musk stated, "We'd like to see how the global economy looks before we start the Mexico factory."

He added, "If the interest rates begin to fall, we will accelerate."

Tesla stock rose initially after hours during the Cybersecurity Delivery Event, but then fell more than 3% on the low-buzz Earnings Call. TSLA fell 4.8% to 242.68 in regular market activity, dropping below the 50-day level. The Tesla bulls are betting on a rebound in fourth-quarter deliveries, with the launch of the Cybertruck and the revamped Model 3 model in China.

Delivery Misses Cast Long Shadow

Early October, Tesla revealed that it had delivered 435.059 cars during the third-quarter, which was 6% less than expected and well below analyst expectations. Analysts have since lowered their Q3 earnings expectations.

Tesla responded to the missed delivery by slashing Model 3 and Model Y U.S. prices. This was a big surprise for Wall Street. Model 3 RWD base price was cut by $1,250 and Model Y Long Range prices by $2,000 for a total of $38,990.

Tesla aggressively reduced vehicle prices to maintain sales momentum throughout the year. This has resulted in auto gross margins, excluding credits for regulatory purposes, falling below 20%. Tesla's auto gross margins, excluding regulatory credit, peaked at 30 % in Q4 of 2021. Tesla's core profit margins fell to 19% in the Q1 of this year and 18.1% in the Q2 of that same year.

According to FactSet, the consensus among analysts was that auto gross profit margins would be around 18.2% for Q3. Several analysts, however, expected it to fall between 16%-17%. Tesla cut the price of the Model 3 base in the U.K. by $3,650 on Tuesday, one day before the Q3 earnings.

Wedbush's Dan Ives, an avid Tesla fan, said in a Monday article that Wall Street will be "laser-focused on the margin performance" during Q3.

Ives said that Wall Street had shown patience, but now is the time to draw a line on the sand. We believe that investors will listen to Musk as he discusses the philosophy of price reductions going forward in the U.S.A. and China.

Adam Jonas, an analyst at Morgan Stanley, wrote late last week that "expectations for the quarter seem to be quite low." In his research note, Jonas stated that it is "hard to find an investor" who does not expect negative revisions for the quarter.

Alexander Potter, a Piper Sandler analyst, also lowered his Tesla price target to 290 dollars from 300 dollars and maintained an overweight rating for the shares.

Potter wrote: "Cybertruck, and other growth initiatives, are on the horizon. But, still, we wouldn’t be surprised if TSLA traded sideways at best in the coming month."

Tesla Earnings and Stock Performance

According to MarketSmith, Tesla stock is currently below the 278.98 buying point of a cup with handle base. Investors who are more aggressive could take advantage of the high price of 268.94 on October 10 as an entry point.

UBS cut its Tesla 12-month stock price target last week to 266 from 290. The firm raised its TSLA price target from 270 to 290 a month ago. Jefferies has also recently reduced their price target for Tesla from 265 to 250. The firm expects revenue for Q3 to total $23,87 billion with an EPS of 64cents.

Wells Fargo reiterated its equal weight rating for Tesla on Oct. 9. The firm reduced its price target for TSLA from 265 to 260 in the 12-month period. Wells Fargo's gross profit margins fell to 16.3% in the third quarter and are expected to fall further in the fourth quarter.

Analysts maintain that the United Auto Workers' strike against Ford (F), General Motors(GM) and Stellantis(STLA) was good news for Tesla. Tesla is a non-union shop.

Tesla is ranked fourth among 35 stocks in the IBD automaker group. S&P 500 has a Composite Rating of 97 out of 99 possible. Tesla stock has also a Relative Strength rating of 94 and a Earnings Per Share Rating of 93.