A Tesla ‘Death Cross’ Appears as Investors Brace for Q3 Earnings

Shares of Tesla (NASDAQ: $TSLA) could take a hit in the coming days as several analysts expect the carmaker to report significantly lower earnings per share (EPS) and margins due to a series of price cuts the company imposed throughout the year. In addition, the company’s shares appear to be shaping a “death cross” – a bearish formation signaling a potential downtrend. 

Tesla Chart Turns Bearish as Death Cross Pattern Emerges

According to a technical overview of Tesla’s chart, the company’s shares appear to form a bearish pattern known as the “death cross.”

The death cross refers to a bearish technical chart pattern that emerges when a short-term moving average (typically the 50-day) crosses below a long-term moving average (such as the 100-day or 200-day) for a particular asset’s price. It signals a potential shift towards a downtrend and often indicates investors to take a more cautious stance on the stock.

In Tesla’s case, the chart demonstrates the emergence of a potential death cross pattern as the 50-day moving average, currently at $250.29, crossed below the 100-day moving average at $250.79. The two MAs also support the carmaker’s share price, which currently sits just above $251.12. 

On the upside, Tesla faces a resistance area between $264.3 and $268.9. 

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Tesla Margins and EPS Expected to Slump in Q3

Apart from the technical part, the fundamental analysis also suggests a potential downtrend for the world’s biggest automotive stock. Notably, analysts expect Tesla’s margins to decline in Q3 and take an even larger beating in the last quarter of the year, raising concerns among investors that the automaker could impose new price cuts to spur demand. 

Tesla reduced the prices of its flagship models several times this year, giving up some profitability to drive sales of its aging EV line-up amid intensifying competition in China and a high-interest rate environment in the US. 

“I don’t think the price cuts are over, mainly for the reason that demand is still weak.”

– said Thomas Martin, senior portfolio manager at Tesla shareholder Globalt Investments.

The company is set to report its Q3 earnings on Wednesday, and many strategists expect Tesla to report significantly lower margins due to the aforementioned price cuts. According to nine analysts surveyed by Visible Alpha, Tesla’s margins are projected to hit a four-year low of 18.1% in the third quarter, excluding regulatory credits. 

Analysts have been reducing their Q3 earnings outlooks for Tesla throughout 2023. Wall Street expects the company to report a 30% drop in its EPS to 73 cents, which would mark a two-year low. Revenue is estimated to climb 10% year-over-year, but a decline is expected compared to the previous quarter. 

Gross margins are also anticipated to drop due to the current price war in the industry. If these predictions of decreased earnings and margins materialize, it could significantly shift investor sentiment toward a more bearish stance on Tesla’s stock.

Do you think analysts’ predictions of lower margins and earnings will stand? Let us know in the comments below.