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Tesla investors to focus on demand issues in earnings report

Published 10/18/2022, 01:33 PM
Updated 10/19/2022, 07:15 AM
© Reuters. FILE PHOTO: The logo of Tesla is seen in Taipei, Taiwan August 11, 2017. REUTERS/Tyrone Siu/File Photo
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(Reuters) -Tesla Inc's quarterly report on Wednesday will likely show whether the Elon Musk-led electric-vehicle maker is facing any weakness in demand that is starting to weigh on the wider auto industry.

Decades-high inflation, rising energy bills in Europe and signs of a weakening China market have raised doubts among some analysts about whether Tesla (NASDAQ:TSLA) can buck an economic slowdown and continue to raise prices without hurting its sales.

Although Musk has said Tesla "does not have a demand problem", the company's latest report on deliveries showed that it made 22,000 more EVs than it delivered to customers in the third quarter. It blamed the rise in inventory on transportation-related problems.

CONTEXT

Demand for Tesla vehicles in China, the world's biggest market for autos, is emerging as a major worry among Wall Street analysts, given that the EV maker faces tough competition from domestic rivals BYD, Nio (NYSE:NIO) Inc and XPeng Inc.

"A top concern right now is demand in China as wait times seem to be shrinking," RBC Capital Markets said. "Question is if this is a blip or signs of a bigger change among consumers."

Globally, there are fears that auto sales may lose steam in the coming quarters as rising interest rates and a weaker economic backdrop discourage consumers from making big-ticket purchases.

Analysts say pricing is a key factor that could help Tesla make up for a possible demand drop and boost revenue.

The average U.S. selling price of Tesla's Model 3 has risen about 24% since January last year, potentially helping the EV maker rake in record revenue in the third quarter.

Wells Fargo (NYSE:WFC) said Tesla is likely the biggest beneficiary of the Biden administration's new consumer tax credits to incentivize North American battery and EV production.

Musk also raised hopes of a share buyback earlier this month when he said "Noted" on Twitter in response to a major individual investor's call for a stock buyback.

Such a move could benefit Musk, whose 15% stake in Tesla makes him its biggest stakeholder, and help him raise cash to fund his $44 billion deal to take Twitter Inc (NYSE:TWTR) private.

Some experts say Musk may need to sell up to an extra $3 billion in stock after the earnings announcement to help fund the deal.

"If there is a big sale of Tesla stock by Musk after earnings, that will be a strong sign that the Twitter deal is on the cusp of closing," said Adam Badawi, a law professor at UC Berkeley.

FUNDAMENTALS

* Analysts are expecting Tesla's third-quarter revenue to rise about 60% to $21.96 billion and earn $1 per share when it reports results on Oct. 19 - Refinitiv Data

WALL STREET SENTIMENT

* Of 43 analysts covering the company, 27 rate the stock "buy" or higher, 10 have a "hold" rating and six have "sell" or lower

* The median price target is $325, an 14% increase since at the start of 2022

QUARTER ENDING REFINITIV IBES ACTUAL BEAT,

EPS ESTIMATE MET,

MISSED

June 30 2022 0.60 0.76 Beat

March 31 2022 0.75 1.07 Beat

Dec. 31 2021 0.79 0.85 Beat

Sept. 30 2021 0.53 0.62 Beat

​​June 30 2021 0.33 0.48 Beat

March 31 2021 0.26 0.31 Beat

© Reuters. FILE PHOTO: The logo of Tesla is seen in Taipei, Taiwan August 11, 2017. REUTERS/Tyrone Siu/File Photo

Dec. 31 2020 0.34 0.27 Missed

Sept. 30 2020 0.20 0.25 Beat

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