Editor's note: Tesla's Q3 delivery of 343,830 vehicles was lower than analysts' expectations; Bloomberg consistently expected Q3 earnings per share was US$1.032, and increased by 66.4% year-on-year; analysts recommend focusing on supply and demand, gross profit and autonomous driving progress, US$175 may be an excellent entry point
Tesla will announce its third quarter results for 2022 after the closing of on Wednesday, October 19. According to Bloomberg's survey statistics, analysts unanimously expect Tesla's revenue to be US$22.319 billion, a year-on-year increase of 62.2%; adjusted net profit was US$3.668 billion, a year-on-year increase of 75.2%; adjusted earnings per share was US$1.032, a year-on-year increase of 66.4% .
Source: Bloomberg
However, it is worth noting that Tesla recently announced the delivery volume for the third quarter of 343,830 units, lower than the 358,520 s that analysts generally expect. While it was a record-breaking quarter in terms of delivery volumes, it was a noteworthy sign that third-quarter revenue could be lower than expected.
Looking back at the second quarter, in a difficult economic environment, Tesla actually performed well in all aspects, and most of the key indicators exceeded expectations. However, the delivery volume in the third quarter caused panic among investors and the market. After the release of delivery volume data, it fell for several days and is now close to the low point set in May this year.
Market Source: Huasheng Securities
Despite this, many analysts still say that Tesla's performance has a tradition of exceeding expectations, especially in the situation where the situation is unfavorable. So, after Tesla released its financial report, in addition to paying attention to whether the performance meets expectations, what else should investors pay attention to?
1. Production capacity upgrade and gradually return to normal?
The third quarter of 2022 was not only a record-breaking quarter for Tesla's delivery volume, but also, as expected, it was also a record-breaking quarter for Tesla's automobile production. The company produced 366,000 vehicles in the third quarter, a significant increase from the 259,000 production in the second quarter of 2022.
Tesla's quarterly automobile production
In the second quarter of this year, Tesla's production and sales fell sharply month-on-month because of the impact of the epidemic, Tesla's Shanghai factory was closed for a long time. Musk said on the call that despite this, the second quarter was still one of Tesla's strongest quarters in history, and more importantly, in June, its Fremont and Shanghai factories set production records, so it is expected to further break the record in the second half of the year.
From the current point of view, breaking the record in the second half of the year may soon become a reality. The latest data show that Tesla's production has rebounded sharply, largely due to the recovery of its Shanghai factory.
Moreover, most of Tesla's factories are in expansion mode, and the company's production capacity may further expand, while benefiting from economies of scale.
Of course, it should be noted that supply is only one aspect. Can the market demand situation support its performance growth?
2. Consumer demand is really so strong as Musk thinks?
Macroeconomic doesn’t look optimistic, US inflation remains high, Fed is still aggressive hike rate , and consumer confidence in 2022 is lower than in the past decade.
University of Michigan United States Consciousness Index Source: Tradingeconomics.com
The key point of the problem is whether it is a good time to buy a brand new high-end car. Musk is optimistic about this:
"There was no sign of a slowdown in the second quarter, and the facts have proved this. Tesla has no demand problem, only production problem. The important thing is to set good prices. Tesla's demand is greater than supply."
However, Wall Street analysts Andreea and Jamie said that the output in the third quarter reached a new high, but the delivery volume was lower than analysts' expectations. This may be because analysts were too optimistic before, but it can also prove that Tesla's demand may not be as certain as before.
They said that there should be many questions about demand being asked during the third quarter earnings call.Therefore, investors need to focus on Musk's response to demand, whether it is still the same as before, , or whether Tesla can still have an immune effect on the weak economic environment.
3. Focus of performance: gross profit margin
In the second quarter, due to interruption of production capacity, Tesla's gross profit margin significantly decreased, and the overall gross profit margin fell from 29% in the first quarter to 25%, a month-on-month decline of 4 percentage points. The gross profit margin of automobiles in Shanghai fell from 32.9% in the first quarter to 27.9% in the second quarter. Analysts expect there is a high probability of rebounding in the third quarter.
analysts Andreea and Jamie said that gross profit margins in the third quarter still depend on production and demand conditions.
Tesla said that production capacity has recovered and is basically operating normally from the end of the second quarter to the third quarter. Analysts expect factory efficiency to continue to improve over time, as Tesla's gross profit margin has steadily climbed since Q4 2020 (except in the second quarter of this year).
's gross profit margin in the third quarter helps investors understand whether Tesla's demand is as strong as Musk said . In the third quarter, the cost of automobile materials stabilized as inflation and material shortages have been going on for a long time. In addition, as production increases, the push gross profit margin will increase.
Andreea and Jamie believe that if Musk's confidence in Tesla is real, then it can be expected that the gross profit margin will recover to more than 30% in the third quarter, or even reach 33%. Tesla may be affected by the sluggish consumer confidence now than the management believes in the second quarter. If the gross profit margin returns to 33%, it means that Tesla is indeed unique.
4. Are there any surprises in the process of fully autonomous driving? As a leader in the field of fully autonomous driving,
also deserves continued attention. Musk said in a second quarter conference call that he is fully confident of solving the problem of fully autonomous driving, and it is very likely this year.
Considering the number of drivers using the FSD beta Tesla, from 2,000 a year ago to 160,000 now, it may explain Musk's confidence in these words.
However, before Tesla's technology is ready for a global official launch, there are still a lot of regulatory and testing obstacles to overcome. Therefore, it is also worth paying attention to whether the goal of fully autonomous driving announced by Musk has changed in the third quarter of .
5. Is the valuation reasonable?
analysts Andreea and Jamie said that considering Tesla's quality and execution, as well as potential profit growth and growth, the relative valuation of EV/EBIT (enterprise value multiple, enterprise value/earnings before interest and tax) is adopted. As of now, based on the expected return in 2022, its valuation is about 63 times, and 's estimated revenue in 2026 is 28 times, and the valuation is relatively reasonable.
The report released by Bank of America after the second quarter's performance showed that they believe that based on 2023 earnings, Tesla's reasonable valuation should be 13 times EV/Sales and 55 times EV/EBITDA, and according to 2025 estimates, they are 3.5 times and 22 times respectively. As of now, Tesla's valuation is about 10.2 times EV/Sales and 47.8 times EV/EBITDA.
However, some analysts from the research institution Envision Research believe that Bank of America's valuation is too optimistic. For reference, the overall market valuation is about 3.5 times EV/Sales and 16 times EV/EBITDA. He believes that before the fourth quarter, Tesla with html$6,175 is an excellent entry point for .
After Tesla announced its third-quarter delivery volume, several major banks expressed their views.
Morgan StanleyAnalyst Adam Jonas lowered Tesla's target price from $383 to $350 and maintained a "overweight" rating of . He said the delivery of volume is 5% lower than the general expectation of and 10% lower than his own estimate. He believes that the factors that led to Tesla's lower-than-expected production and delivery in the third quarter "may continue to form adverse factors" until the fourth quarter and fiscal 23.After Tesla issued its delivery and production announcement last week, Jonas lowered its forecast for fiscal 22 delivery to 1.31 million from 1.37 million, and lowered its forecast for fiscal 23 delivery to 1.8 million from the previous 2 million.
Ruisui analyst Vijay Rakesh lowered Tesla's target price from $391.67 to $370 and maintained the buy rating . He believes that since supply and logistics "still be a challenge", the third-quarter results may roughly meet expectations. He believes that China's demand for electric vehicles is still strong, and after the third quarter, the penetration rate of China's electric vehicle may be close to 25%-30% of car sales.
