TSLA Earnings: Margins Expected to Shrink, But Tech Narrative Dominates
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TSLA Earnings: Margins Expected to Shrink, But Tech Narrative Dominates

Tesla is expected to disclose lower margins and profit in today's Q3 report, but many investors remain confident in the company's long-term outlook.
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Investors and analysts expect Tesla (NASDAQ: $TSLA) to post lower profits and margins in its Q3 report due later today, primarily because of the string of price cuts the company imposed throughout the year. However, despite this outlook, Tesla’s stock market rally remains intact as investors continue to see the company not just as a carmaker but as a tech giant. 

Tesla Q3 Profit Estimates Fell 50% in 2023 Due to Price Cuts

Electric vehicle (EV) behemoth Tesla is set to report its Q3 earnings results on Wednesday, with analysts and investors expecting a potential decline amid concerns over the company’s margins and demand following a series of price cuts in 2023.

In a note last week, Morton Stanley strategist Adam Jonas said that sentiment toward Tesla’s earnings for the rest of 2023 “skews cautions,” and warned that profits could be revised lower. Additionally, investors are “wondering if Tesla can grow earnings at all” in the following year, which is expected to be “volatile,” the analyst added. 

The automaker’s Q3 profit estimates have plummeted by almost 50% in 2023 due to an aggressive price-cutting campaign to spur demand for its electric vehicles. Despite these moves, shares of Tesla have more than doubled year-to-date, propelling its market cap to almost $800 billion. Consequently, some market analysts and investors see TSLA as substantially overvalued.

Market watchers are particularly keen to see Tesla’s automotive gross margin figures in today’s report. This serves as a key measure of the profitability of car sales, with the current estimates projecting a year-over-year drop from 28% to 19%, according to consensus estimates compiled by Bloomberg. 

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Investors See Near-Term Margin Headwinds Just as Temporary Blow

Tesla’s remarkable rally in the face of belligerent price cuts reflects investors’ bets that the EV behemoth will retain its dominance in the ever-growing market. Additionally, many expect Tesla to stand at the forefront of the next innovation cycle in the automotive business, which will likely be marked by self-driving cars and artificial intelligence. 

As a result, many Tesla investors no longer perceive the company solely as a car manufacturer but rather as an innovative technology business. As such, they see the near-term margin declines as a temporary blip, while their hopes in Tesla’s long-term prospects remain high. 

Elon Musk previously said it was a sensible move for the company to “sacrifice margins in favor of making more vehicles,” with expectations that the value of these cars would drastically surge once Tesla fully implements autonomous driving capabilities. Last month, analysts at Morgan Stanley hiked their price target on TSLA, citing bullishness on the automaker’s recently launched supercomputer Dojo. 

Do you agree with investors’ views that the expected drop in Tesla’s Q3 margins will be a transitory blow? Let us know in the comments below.