Markets Get Apprehensive About Tesla Ahead of Q3 Delivery Report
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Early next month, Tesla (NYSE: TSLA) will release its Q3 2023 delivery report. The Elon Musk-run company missed delivery estimates in the last two quarters and some analysts expect it to miss consensus delivery estimates in the third quarter also.
Tesla has set a 2023 production guidance of 1.8 million which Musk said can rise to 2 million in the best case. The company delivered 440,808 cars in the first quarter and delivered 422,875 of these. In the second quarter, its production and deliveries were 479,700 and 466,140 respectively.
Notably, for the last many quarters, Tesla’s production has been in excess of its deliveries – a sign that its production capacity – which has increased significantly with the ramp-ups at the Berlin and Texas plants, is now ahead of demand.
Barclays expects Tesla to miss Q3 delivery estimates
Barclays, which was bullish on Tesla heading into the third quarter now expects the company to deliver around 455,000 vehicles in the third quarter which is below the consensus estimate of 463,000.
In its note, Barclays said, “We expect 3Q deliveries of 455k units, a miss vs. consensus of 463k, and also below our currently published [estimate] of 483k. Our estimate also implies a q/q decline from 2Q23 of 466k. We believe recent commentary on the pace of production provides some hint on the potential delivery volume in 3Q. Indeed, our delivery estimate is based on a production assumption of ~435k as well [as] an inventory drawdown of 20kUnderscoring our expectation for a slight miss is that demand remains soft. Of course, pricing actions may have helped offset weak demand to some extent, as we saw ongoing price actions in 3Q.”
On a related note, Citi analyst Jeff Chung analyzed China’s insurance registration data which shows a fall in weekly sales of Tesla’s vehicles in China in September. China is a major market for Tesla and the company runs its most productive Gigafactory in Beijing.
NewStreet Research also expects Tesla to miss deliveries
NewStreet Research also expects Teala to miss consensus delivery estimates in the third quarter. Its analysts led by Pierre Ferragu said in a note, “We believe the miss is well anticipated by both the buyside and retail influencers. The sequential decline results from production pauses at all of Tesla’s factories over the course of the quarter. In Shanghai and Fremont, the transition to Model 3 Highland resulted in multiple production pauses In Texas and Berlin, we understand the pauses were for more routine upgrades to the Model Y production lines. However, underlying demand seems largely stable.”
They added, “We estimate that the factory shutdowns will have a one-off impact of 2.5pts in 3Q23We are unclear about the impact of further price cuts. As they affect higher-end models, they may reflect in improved mix, but they could result in some pressure as well. Overall, the situation appears stable.”
EV price war
In order to lift its deliveries, Tesla has lowered the prices of its cars. The price cuts have helped Tesla propel its deliveries but have sparked a price war which has also hit its own operating margins.
Goldman Sachs lowered Tesla’s earnings estimates amid lower vehicle selling prices and reiterated the stock as neutral.
Other automakers like Ford, NIO, and Xpeng Motors have also cut vehicle prices after Tesla’s price cuts. Meanwhile, Ford expects EV adoption to be slower than what it previously envisioned and said that its annual capacity would now hit 600,000 by the end of 2024 instead of this year as it previously expected. It also said that it might not hit the 2 million production capacity by 2026 as “we maintain flexibility on where we reach when we reach two million total EV global capacity because we are balancing growth, profitability, and returns.”
It blamed the EV price war and said, “While EV adoption is still growing, the paradigm has shifted. EV price premiums over internal combustion vehicles fell more than $3,000 in the second quarter and nearly $5,000 in first half. We expect the EV market to remain volatile until the winners and losers shake out.”
Tesla could be a beneficiary of the UAW strike
Analysts believe that Tesla along with Toyota would benefit from the ongoing United Auto Workers (UAW) strike. Tesla does not have a union and the company has resisted unionization plans.
Meanwhile, the stalemate between automakers and UAW has continued and while the former are offering a 20% pay hike over four and a half years, the unions want a 40% hike. Wells Fargo estimates that the pay hike proposed by automakers would mean $700 million to $1.2 billion in costs over the contract period. However, a 30% hike along with cost-of-living adjustments would mean additional costs between $1.7 billion-$2.4 billion.
Automakers stare at massive losses from the strike
Meanwhile, the strike would negatively impact the profits of Big Three automakers which include Ford, General Motors, and Stellantis. Morgan Stanley for instance estimates that a full month of production loss could lead to combined losses between $7 billion-$8 billion for the Big Three.
The strike would also have a cascading impact on the US economy given the multiplier effect of the automotive industry and S&P estimates that the strike could shave off 0.39% from third quarter US GDP.
Coming back to Tesla’s Q3 deliveries, while a section of the market is getting apprehensive about a possible miss, Jim Cramer believes that Tesla stock would rally if the company can beat Q3 delivery estimates.
