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Tesla Q4 preview by Morgan Stanley: margins, prices, guidance, demand

Published 01/24/2023, 10:49 AM
Updated 01/24/2023, 11:00 AM
© Reuters.  Tesla (TSLA) Q4 preview by Morgan Stanley: margins, prices, guidance, demand
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By Vlad Schepkov

Tesla (NASDAQ:TSLA) is set to release its fourth quarter report tomorrow, January 25th, 2023, after the market closes.

Analysts expect the EV giant to post EPS of $1.13 on revenue of $24.03 billion.

Raw numbers aside, here are 5 key things to watch, according to Morgan Stanley:

1. Gross margins net of EV credits, and Full Self-Driving (FSD) 'Unlock' updates: "We are prepared for the FSD unlock to potentially add several hundred million dollars to automotive gross profit, or potentially up to 300 to 500bps of gross margin. Given the uncertainty, our forecasts do not include any explicit accelerated FSD unlock. Excluding these transitory factors, we anticipate 4Q 'clean' auto gross (ex ZEV credits) to fall to 26.2% and anticipate a further drop to 23.3% in FY23 with downside bias following recent price cuts."

2. Average Transaction Price (ATP) following price cuts: "We think the bogey today is for slightly more than 100% of prior year (FY22) inflation to be given back, taking ATPs to a $45k to $48k range. Investors will look for any guidance from the company on this issue."

3. Updates on demand response to price cuts: "We expect Tesla management to extol the positive reaction to its recent price cuts, reiterating its long term language of 50pct type unit growth over time... to express a view that demand is not a problem."

4. Further restructuring and cost cutting initiatives: "In an environment where a wide range of tech firms are announcing material headcount cuts in recent days, does Tesla not also have an opportunity to adapt its labor footprint to a slowing environment?"

5. Any EPS guidance for FY2023: "We believe investors must have confidence that FY earnings have 'bottomed' before seriously revisiting the stock."

Morgan Stanley reiterates an 'Overweight' rating on Tesla with a $250 price target ahead of the release.

TSLA is currently trading around $143, or up 17% YTD.

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