Tesla’s upcoming earnings report is causing some concern among bullish investors. The focus is on profit margins and the hope that they have reached their lowest point.
Tesla, listed as TSLA, is scheduled to release its third-quarter results on Wednesday evening. Analysts anticipate earnings per share to be around 73 cents, slightly down from the previous estimate of 77 cents. The company fell short of Wall Street’s projections by approximately 20,000 units, delivering 435,000 vehicles in the third quarter.
Consequently, price targets have been revised downward along with these estimates. Just recently, Piper Sandler analyst Alexander Potter adjusted his target price for Tesla stock from $300 to $290. However, heremains optimistic with a Buy rating for the stock. Despite the upcoming delivery of the Cybertruck, he believes that the stock will likely trade sideways or experience limited growth in the following months. Potter believes that for investor enthusiasm to reignite, profit margins need to stabilize and delivery growth should accelerate.
The issue at hand revolves around profit margins. Recently, automotive gross profit margins for Tesla have been declining in tandem with the reduced prices of their vehicles. Notably, a brand-new long-range Model Y is now priced around 25% lower than its peak levels. In the second quarter of 2022, Tesla’s automotive gross profit margin hit about 18%, a significant decrease from the first-quarter peak of approximately 30%.
Tesla Investors Focused on Profit Margins
Analyst Predicts Bottoming Out in Third Quarter
According to Wedbush analyst Dan Ives, investors will be closely watching Tesla’s profit margins. While the automotive gross profit margins for the third quarter are expected to be around 17%, investors are more interested in whether management can demonstrate that margins have reached their lowest point.
Ives believes that Tesla’s strategy of prioritizing volume over margins has been successful in gaining market share. However, he cautions that this approach cannot be sustained at the same pace until 2024 without sacrificing margins.
Ives predicts that margins will reach their lowest point in the third quarter. With this in mind, he rates Tesla shares as a Buy and has set a price target of $350 for the stock.
Investors Seeking Stability in Tesla Stock
Despite a year-to-date increase of approximately 104%, Tesla stock has experienced a decline of about 11% over the past three months. This decline reflects investors’ desire to see stabilization in the prices of new Teslas.
In premarket trading, Tesla stock was down 1.1%, while S&P 500 and Nasdaq Composite futures were up 0.3% and 0.1% respectively.