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Delivery Miss & Cost Pressure to Limit Tesla (TSLA) Q4 Earnings

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Tesla (TSLA - Free Report) is set to release fourth-quarter 2022 results on Jan 25, after the closing bell. The focal point of the electric vehicle (EV) manufacturer’s earnings release will be its vehicle production and deliveries. Weaker-than-expected deliveries during the quarter under discussion are likely to mar results.

(Also read: Will Tesla's Beat Streak Snap This Earnings Season?)

Q3 Highlights

In the last reported quarter, Tesla reported earnings of $1.05 a share, which surpassed the Zacks Consensus Estimate of 95 cents. This marked the seventh straight earnings beat for the company. Higher-than-expected revenues from Energy Generation and Storage and the Services and Other segments resulted in this outperformance. The bottom line also compared favorably with the year-ago earnings of 62 cents a share. Total revenues came in at $21,454 million, lagging the consensus mark of $22,323 million. The top line, however, witnessed year-over-year growth of 56%.

Production and delivery totaled 365,923 and 343,830 vehicles for third-quarter 2022, reflecting a year-over-year jump of 54% and 42%, respectively. Model 3/Y registered production and deliveries of 345,988 and 325,158 vehicles, marking year-over-year growth of 51% and 40%, respectively. Production and delivery of the Model S/X totaled 19,935 and 18,672 units, respectively, in the quarter under review.

Tesla had cash/cash equivalents and long-term debt and finance leases of $21,107 million and $2,096 million, respectively, as of Sep 30, 2022. The firm generated a free cash flow of $3,297 million during third-quarter 2022, rocketing 148% year over year.

Record Q4 Deliveries Fall Shy of Estimates

Fourth-quarter deliveries totaled 405,278 units, up 31.5% from the year-ago quarter and 18.5% from the prior quarter. On the surface level, this was impressive, representing quarterly records. However, analysts were looking for deliveries of around 420,000 units. The Zacks Consensus Estimate for total vehicle deliveries was 407,855. Despite Tesla offering aggressive year-end incentives, total deliveries fell short of estimates. 

The fourth quarter of 2022 marked the second straight quarter of delivery miss, in a telling sign that the demand for cars is gradually cooling off amid rising interest rates and economic uncertainty.Supply chain snarls and logistic issues have also been a driving factor behind the less-than-expected delivery numbers.

Tesla’s models 3 and Y are the company’s most successful EVs, accounting for most of its sales. For the quarter, Tesla delivered 388,131 of those, surpassing the Zacks Consensus Estimate of 369,163 units. However, deliveries of models S and X lagged estimates. Fourth-quarter 2022 deliveries of models S and X came in at 17,147 units, below the Zacks Consensus Estimate of 18,149 units.

As for production, Tesla manufactured 439,701 vehicles (419,088 units of Model 3/Y and 20,613 units of Model S/X). How does that compare with estimates? For the quarter under discussion, the Zacks Consensus Estimate for total production was 462,451 units (446,533 Model 3/Y units and 15,918 Model S/X units). Apart from chip concerns, the COVID resurgence in China caused the company to temporarily suspend and reduce production at its Shanghai factory. 

In addition to the total production and deliveries miss, Tesla offered steep discounts on its models in the United States, China and elsewhere to spur demand, which is likely to have limited automotive revenues to some extent. Further, commodity cost inflation is likely to have put pressure on its margins.The Zacks Consensus Estimate for the total automotive cost of revenues is $16.4 billion, significantly higher than $11.08 billion in the fourth quarter of 2021. 

Overall Earnings & Revenue Projections for Q4

Our proven model does not conclusively predict an earnings beat for Tesla as it doesn’t have the right combination of a positive Earnings ESP and a favorable Zacks Rank. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The company has an Earnings ESP of -9.52% as the Most Accurate Estimate is pegged 10 cents lower than the Zacks Consensus Estimate. Tesla currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings is pegged at $1.05 per share, indicating an increase of 23.53% on a year-over-year basis. The consensus mark has moved south by 9 cents a share over the past seven days. The Zacks Consensus Estimate of $24.82 billion for sales indicates a 40.1% rise on a year-over-year basis.

Stocks With the Favorable Combination

While an earnings beat looks uncertain for Tesla, here are a couple of players from the auto space, which, according to our model, have the right combination of elements to post an earnings beat for the quarter to be reported:

Lear (LEA - Free Report) will release fourth-quarter 2022 results on Feb 2. The company has an Earnings ESP of +4.29% and a Zacks Rank #3.

The Zacks Consensus Estimate for Lear’s to-be-reported quarter’s earnings and revenues is pegged at $2.53 per share and $5.26 billion, respectively. LEA surpassed earnings estimates in the trailing four quarters, with the average surprise being 18%.

Harley-Davidson (HOG - Free Report) is expected to report fourth-quarter 2022 results by mid-February. The company has an Earnings ESP of +300.00% and a Zacks Rank #2.

The Zacks Consensus Estimate for Harley-Davidson’s to-be-reported quarter’s earnings and revenues is pegged at 3 cents per share and $880.5 million, respectively. HOG surpassed earnings estimates in three of the trailing four quarters and missed once, with the average surprise being 43.3%.

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