By Senad Karaahmetovic
Tesla (NASDAQ:TSLA) is due to report earnings on Wednesday after market close with analysts expecting the electric vehicle (EV) maker to report a profit per share of $0.85, which would mark a near 20% drop relative to last year.
Revenue is seen rising 26% to $23.73 billion while the focus will be on gross margins, which are seen at 21%, a sharp drop relative to 24.3% reported for the fourth quarter.
Investors will be eager to see how Tesla’s recent price cuts have impacted the company’s profit margins. Auto gross margins are expected at 23.2%, down from a record 32.9% a year earlier and the lowest since the fourth quarter of 2019, according to Visible Alpha consensus.
More importantly, Tesla’s CFO said on the latest earnings call that auto gross margins would not go below 20% in any quarter in 2023.
Street also expects the average selling price to drop to $47,250, down from the $51,400 reported for the last quarter.
Earlier this month, Tesla reported it produced over 440,000 EV units and delivered over 422,000 vehicles in Q1.
“We continued to transition towards a more even regional mix of vehicle builds, including Model S/X vehicles in transit to EMEA and APAC,” Tesla said in a press release.
What analysts are expecting from Tesla:
Here are the latest thoughts from sell-side analysts ahead of Tesla’s Q1 EPS report.
Bernstein analysts: "While many investors have been hopeful that Q1 margins might be (at their) bottom, we don't believe that will necessarily be the case, particularly given our expectation that further cuts are likely.”
Morgan Stanley analysts: “Tesla should be able to eke out a decent 1Q result, but defending that 20% clean auto gross margin 'floor' may be a different story as 'the world has changed' with respect to EV demand weakening relative to EV supply. A window of opportunity could open up to new Tesla investors.”
Barclays analysts: “While Tesla is still largely viewed as a structural winner, we believe near-term sentiment on the stock has been quite negative of late given the questions of demand, pricing and margins. Accordingly, to the extent Tesla posts a solid margin beat or provides commentary soothing concerns on demand/pricing, the stock could benefit.”
Wedbush analysts: “We continue to strongly believe that aggressive price cuts by Tesla was a smart "rip the band-aid off moment" for Musk & Co. to defend its EV turf and put an iron fence around its consumer installed base. That said, price cuts come at a price and this tug of war between volumes and margins is now the big debate on the Street heading into earnings and the rest of FY23. The bull/bear debate at the core is: When do the price cuts end for Tesla and what will margins look like on the other side of this cycle as we progress through 2023 in a choppy macro?”
Canaccord Genuity analysts: "While Tesla's industry leading margins will likely be sacrificed in the near term (as articulated on the company’s 4Q22 earnings call), many EV competitors are struggling to turn a profit. Despite this more difficult competitive environment, we suspect Rivian’s backlog – which extends to 2024 – should give the company ample demand to deliver upon for some time without the need for price cuts."
Tesla stock is up 51.8% year-to-date (YTD).