Nasdaq 100 Analysis: Where next for Tesla stock ahead of Q1 earnings?

When will Tesla release Q1 2023 earnings?

Tesla will release first quarter financial results after US markets close on Wednesday April 19. A Q&A session with investors will follow on the same day at 1630 CET (1730 ET).

 

Tesla Q1 earnings consensus

Tesla is forecast to report a 24% year-on-year rise in first quarter revenue to $23.3 billion. Adjusted EPS is expected to drop over 20% from the year before to $0.86, with reported EPS at the bottom-line to experience a sharper fall of 29% to $0.68, according to consensus numbers from Refinitiv.

 

Tesla Q1 earnings preview

We already know that Tesla produced 440,808 vehicles and delivered 422,875 of them to customers in the first three months of 2023.

Tesla has made several price cuts across multiple geographies since the start of 2023 in the hope of supporting demand. However, while production and deliveries hit a new record in the period, but there was only a mild uptick from the last quarter to suggest price cuts are not fuelling demand as much as hoped. This will result in slower revenue growth this quarter.

Deliveries were up 36% from the year before in the first quarter and, while strong, this is still short of Tesla’s ambition to grow by 50%, suggesting more support could be needed to boost volumes if it is to achieve that goal after years of falling short.

Quarterly production also fell short of that target after rising 44%. Tesla is aiming to produce 1.8 million cars in 2023 as a whole, which would be around 31% higher than what we saw in 2022. CEO Elon Musk has floated the potential for this to hit 2 million, but this would still fall short considering that would represent a 46% year-on-year increase.

But the key focus is on profitability what the impact of price cuts will be on margins.

‘Make no mistake – the price cuts reflect Tesla’s need to stimulate demand and are an explicit trade off of margins for volume,’ Bernstein analyst Toni Sacconaghi said last week. Several analysts have warned they think more price reductions could come this year and that profitability will not necessarily bottom-out in the first quarter. 

Tesla could impress if it can offset price cuts with lower costs to protect its margin, but a soft reading could revive concerns over capacity and the lack of new models while putting consensus estimates for 2023 at risk. With this in mind, Wall Street is looking for an automotive gross margin of 23.0% and an overall gross margin of 21.2% in the first quarter, according to consensus numbers from Bloomberg.

The hope is that improved economies of scale, driven by the ramp-up at newer factories in the US and Germany, and a fall in lithium prices this year will provide some wiggle-room and absorb some of the impact from price cuts.

If the consensus numbers are accurate, then we are about to see the tightest margins since late 2019! Importantly, finance chief Zachary Kirkhorn vowed to keep margins above 20% earlier this year, so this is a key level to keep in mind – especially as some on Wall Street anticipate more price cuts to come.

One reason that Tesla can afford to sacrifice some of its margin is because its profitability is superior to its rivals. That means it is in a better position to absorb the impact of lower prices compared to its competitors, including both smaller startups and traditional carmakers.

For example, the CEO of French brand Renault said just today that the company is reviewing prices of its electric cars around the world after Tesla announced it was lowering prices across Europe last week, following on from reductions made in China, the US and elsewhere earlier this year. ‘It’s clear that [Tesla cutting prices] is a challenge, starting with the cost side of things. It’s a warning that we are looking at,’ CEO Fabrice Cambolive said.

This shows that Tesla is leading the charge when it comes to price cuts and dictating the attitude in the market, rather than being a follower and responding to moves by rivals.

Still, we know competition is intensifying and that traditional carmakers are starting to make an impact as they increase production of their electric vehicles and more EV startups ramp-up. At its peak, 86% of all electric vehicles sold in US during the third quarter of 2018 were from Tesla but this slipped to 57% in the fourth quarter, according to data from Bloomberg.

One concern is that Tesla has failed to introduce new models and has a limited selection on offer, which could increase pressure to refresh its portfolio going forward. The introduction of the Cybertruck in late 2023 (following several lengthy delays) has the potential to provide a new catalyst in 2024. Elsewhere, the Tesla Semi is currently in pilot production and the Roadster and Robotaxi are both in development.

 

Where next for TSLA stock?

Tesla shares have struggled to recover back above the 50-day moving average over the past two weeks, but a well-received set of earnings could propel shares back above this threshold and bring the 200-day moving average at $215, roughly in-line with the 2023 peak, back into view. A move above here could open the door to a move above the November high above $234.

Any pressure could push shares toward the 100-day moving average at $171.50, although $167 could prove to be a firmer level of support considering this provided a brief floor last November and marked the trough we saw in March. Any slip lower would bring the lows we saw in early 2023 back onto the radar.

The 42 brokers that cover Tesla currently have an average target price of $197.44, implying there is only around 6% potential upside from current levels. That has nudged-up in recent months but is still largely in-line with the target price slapped on the stock at the beginning of 2023.

Notably, we have seen a cup and handle pattern emerge, which is clearer on the weekly chart, following a sweeping ‘U’ shape we saw between November and February followed since by a slight downward trend to form the handle, supported by the fact trading volumes have also eased since the handle began to form. This is generally regarded as a bullish formation and suggests the upper end of the handle, currently at around the $200 mark, is a key level to watch as a move above here could lead to a potential breakout.

 

 

Take advantage of extended hours trading

Tesla will release earnings after markets close and most traders must wait until they reopen the before being able to trade. But by then, the news has already been digested and the instant reaction in share price has happened in after-hours trading. To react immediately, traders should take their positions in pre-and post-market sessions.

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