Will Tesla’s Q3 Earnings Justify Stock’s 20% Rally?
With Tesla stock (NASDAQ:TSLA) gaining more than 22% in the past quarter, investors are looking forward to the company’s Q3 2024 earnings report, due around October 23. Tesla has already published its delivery figures for the quarter, indicating that it delivered 462,890 vehicles, a 6.4% increase from last year. While the delivery numbers were below Wall Street’s optimistic estimates, they mark the company’s first quarter with annual delivery growth for 2024. For perspective, deliveries dipped by roughly 9% and 5% during Q1 and Q2, respectively. Now for Q3, we expect revenue to come in at $25.4 billion, up about 8% year-over-year, slightly better than consensus estimates, while earnings are likely to stand at about $0.58 per share, compared to a consensus of $0.57 per share. See our analysis of Tesla Earnings Preview for more details. So what are some of the trends that will drive results over the quarter?
Tesla’s delivery growth this quarter has likely been supported by its recovery in China – a market where the company has faced intense competition from local rivals and slowing consumer demand. Tesla ramped up promotions in China, offering zero-interest loans of up to five years and upfront discounts on select models. Additionally, government EV subsidies and the approval of Tesla’s Model Y for government use should further boost sales. While Tesla does not disclose its Chinese delivery figures, data from the China Passenger Car Association shows a 19.2% year-over-year sales increase for Tesla for the month of September, indicating that the incentives are having a positive effect. Moreover, in the U.S., promotions such as the 1.99% vehicle financing, which ended in August, and higher sales of the premium Cybertruck have likely contributed to Tesla’s Q3 performance. However, the energy segment may post mixed results. Tesla deployed 6.9 giga-watt hours of energy storage products over the last quarter, down from over 9 GWh in Q2 although this would still mark an improvement from the 3.98 GWh in the year-ago period. The company has previously noted that energy deployments can be uneven, depending on project milestones for large-scale installations. Read more about Tesla’s recent troubles in China.
We will be closely watching Tesla’s margins for the quarter. The company’s considerable promotions have been weighing on the average selling prices of its vehicles. Over Q1 2024, the average price of Tesla vehicles dropped to under $45,000, down from about $47,000 in the same quarter last year. In Q2, the average price of Tesla vehicles fell further to about $44,500. Gross margins came in at 18% in Q2 2024, down by about 20 basis points compared to the same quarter last year and there is a possibility that we could see a marginal decline over Q3 as well.
Overall, the performance of TSLA stock with respect to the index over the last 4-year period has been quite volatile. Returns for the stock were 50% in 2021, -65% in 2022, and 102% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could TSLA face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?
We maintain our view that Tesla will be a big beneficiary of the long-term transition to cleaner transportation and energy generation, given its well-oiled supply chain, superior battery, and drive-train technologies, and its lead with car software and self-driving technology. That said, the company’s overall deliveries and earnings are facing pressure this year, falling well below the company’s multi-year target of 50% annual growth in revenues. A lack of extensive charging networks in many countries, and falling resale values for EVs are likely discouraging potential buyers in the interim. The market of early EV adopters is also likely saturating, leading to lower demand. We value Tesla stock at $230 per share, which is slightly below the current market price. See our analysis on Tesla Valuation: Is TSLA Stock Expensive Or Cheap? for more details on Tesla’s valuation and how it compares with peers. For more information on Tesla’s business model and revenue trends, check out our dashboard on Tesla Revenue: How Does TSLA Make Money?
| Returns | Oct 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| TSLA Return | -8% | -3% | 1595% |
| S&P 500 Return | 0% | 21% | 157% |
| Trefis Reinforced Value Portfolio | 1% | 16% | 776% |
[1] Returns as of 10/10/2024
[2] Cumulative total returns since the end of 2016
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