We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Will Tesla ETFs Beat on Low Expectations or Miss on Margin Woes?
Read MoreHide Full Article
Electric vehicle maker Tesla (TSLA - Free Report) will release its Q3 earnings on Oct 18 after the close of the markets. It’s been a successful year for TSLA investors, with the stock showing an amazing performance by more than doubling in value. But Tesla’s stock slumped about 4.3% in the past one month.
Bearish Analysts Sentiments
Tesla has observed a decline in earnings estimates for the September quarter over the past three months. The current consensus estimate for earnings is 73 cents, down from 78 cents one month ago, 79 cents two months ago, and 86 cents three months ago. Meanwhile, the Most Accurate Estimate of Tesla is 71 cents.
Tesla has an Earnings ESP of -2.74% and a Zacks Rank #3 (Hold). According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Margin Pressure in the Cards?
The Zacks Consensus Estimate for the third quarter indicates substantial year-over-year earnings decline of 30.5% and revenue growth of 13.6%. Earlier this year, Tesla made its intentions quite clear - it would prefer delivery growth to higher margins. Tesla, in fact, resorted to several price cuts in the past few months.
However, the price cuts have led to margin weakness, and Tesla’s operating margins dropped to 9.6% in Q2 of 2023. Our estimate for operating margin for Q3 is 7.9%, which shows another decline. But, if Tesla manages a decline less than expected, an optimism can be seen around the stock, post earnings release. Notably, at the end of Q1 of 2022 the company had an operating margin of as high as 19.2%.
Delivery Guidance in Focus
Tesla already revealed its Q3 vehicle delivery and production numbers, which generate the majority of the company’s revenues. The leading electric carmaker delivered 435,059 (419,074 Model 3 and Y and 15,985 Model S and X) cars worldwide in the third quarter, up 26.5% from the year-ago quarter and down 6.7% from the prior quarter.
Tesla expects to deliver 1.8 million vehicles in 2023. Tesla has delivered slightly more than 1.3 million vehicles so far this year, meaning Tesla has to deliver more than 450,000 vehicles to meet its guidance. This seems to be a tall order given high inflation, high interest rates and stiff competition.
As we move toward the end of 2023, the delivery guidance for 2024 will be in focus. Moreover, investors would be interested to know something more about Cybertruck production and delivery timelines.
Tesla’s AI Initiatives & Update on Autonomous Cars
Tesla is emerging to be an Artificial Intelligence (AI) company. Tesla has had a longstanding emphasis on AI development as an essential component of the company's Autopilot software for autonomous driving. Tesla chief Musk said in the middle of the year that fully driverless cars will be delivered this year. Hence, any updates on this front will be eagerly awaited.
ETFs in Focus
From the above discussions, one can understand that Tesla’s chances of beating earnings this reporting season is moderate. Based on short-term price targets offered by 25 analysts, the average price target for Tesla comes to $248.12, marking a 1.19% decline from the last closing price.
Investors who do not have a strong stomach for risks, may thus bet on Tesla-heavy ETFs as the basket approach minimizes the company-specific risks. This has put the ETFs having a substantial allocation to Tesla like Direxion Daily TSLA Bull 1.5X Shares (TSLL - Free Report) , MeetKevin Pricing Power ETF (PP - Free Report) , Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) , Simplify Volt Robocar Disruption and Tech ETF (VCAR - Free Report) and Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) in focus ahead of Q3 earnings.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Will Tesla ETFs Beat on Low Expectations or Miss on Margin Woes?
Electric vehicle maker Tesla (TSLA - Free Report) will release its Q3 earnings on Oct 18 after the close of the markets. It’s been a successful year for TSLA investors, with the stock showing an amazing performance by more than doubling in value. But Tesla’s stock slumped about 4.3% in the past one month.
Bearish Analysts Sentiments
Tesla has observed a decline in earnings estimates for the September quarter over the past three months. The current consensus estimate for earnings is 73 cents, down from 78 cents one month ago, 79 cents two months ago, and 86 cents three months ago. Meanwhile, the Most Accurate Estimate of Tesla is 71 cents.
Tesla has an Earnings ESP of -2.74% and a Zacks Rank #3 (Hold). According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Margin Pressure in the Cards?
The Zacks Consensus Estimate for the third quarter indicates substantial year-over-year earnings decline of 30.5% and revenue growth of 13.6%. Earlier this year, Tesla made its intentions quite clear - it would prefer delivery growth to higher margins. Tesla, in fact, resorted to several price cuts in the past few months.
However, the price cuts have led to margin weakness, and Tesla’s operating margins dropped to 9.6% in Q2 of 2023. Our estimate for operating margin for Q3 is 7.9%, which shows another decline. But, if Tesla manages a decline less than expected, an optimism can be seen around the stock, post earnings release. Notably, at the end of Q1 of 2022 the company had an operating margin of as high as 19.2%.
Delivery Guidance in Focus
Tesla already revealed its Q3 vehicle delivery and production numbers, which generate the majority of the company’s revenues. The leading electric carmaker delivered 435,059 (419,074 Model 3 and Y and 15,985 Model S and X) cars worldwide in the third quarter, up 26.5% from the year-ago quarter and down 6.7% from the prior quarter.
Tesla expects to deliver 1.8 million vehicles in 2023. Tesla has delivered slightly more than 1.3 million vehicles so far this year, meaning Tesla has to deliver more than 450,000 vehicles to meet its guidance. This seems to be a tall order given high inflation, high interest rates and stiff competition.
As we move toward the end of 2023, the delivery guidance for 2024 will be in focus. Moreover, investors would be interested to know something more about Cybertruck production and delivery timelines.
Tesla’s AI Initiatives & Update on Autonomous Cars
Tesla is emerging to be an Artificial Intelligence (AI) company. Tesla has had a longstanding emphasis on AI development as an essential component of the company's Autopilot software for autonomous driving. Tesla chief Musk said in the middle of the year that fully driverless cars will be delivered this year. Hence, any updates on this front will be eagerly awaited.
ETFs in Focus
From the above discussions, one can understand that Tesla’s chances of beating earnings this reporting season is moderate. Based on short-term price targets offered by 25 analysts, the average price target for Tesla comes to $248.12, marking a 1.19% decline from the last closing price.
Investors who do not have a strong stomach for risks, may thus bet on Tesla-heavy ETFs as the basket approach minimizes the company-specific risks. This has put the ETFs having a substantial allocation to Tesla like Direxion Daily TSLA Bull 1.5X Shares (TSLL - Free Report) , MeetKevin Pricing Power ETF (PP - Free Report) , Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) , Simplify Volt Robocar Disruption and Tech ETF (VCAR - Free Report) and Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) in focus ahead of Q3 earnings.