Tesla's Upcoming Earnings Report

By Akash Sriram and Abhirup Roy
(Reuters) – Tesla's investors and analysts will have the opportunity to question CEO Elon Musk about his robotaxi plans this Wednesday as the electric automaker releases its quarterly results. This follows a much-anticipated event earlier this month that unveiled the self-driving vehicle but lacked crucial details, resulting in a drop in shares.

Musk's approximately 20-minute presentation on the robotaxi, a vehicle expected to be pivotal for Tesla's future, did not allow questions from the audience. This disappointing introduction heightens investor interest in whether Tesla's primary business of selling cars is improving.

Tesla is projected to report a decline in the third-quarter profit margin on auto sales, influenced by generous incentives aimed at attracting electric vehicle buyers. The company may also see its first annual drop in deliveries as demand wanes for its older models in the face of competition from less expensive EVs in China and new electric vehicles from traditional U.S. manufacturers.

What Wall Street is Watching

Robotaxi Details and Full Self-Driving

A significant portion of Tesla’s $700 billion valuation hinges on Musk’s assurances that its Autopilot software will form the backbone of its robotaxi business. Analysts are poised to ask about production timelines and sales strategies during the post-earnings call. Musk indicated that the robotaxi would commence production in 2026 at a cost below $30,000 and suggested that the unsupervised operation of Tesla's Full Self-Drive software would start by next year in California and Texas.

However, the U.S. auto safety regulator has initiated an investigation into 2.4 million Tesla vehicles equipped with the Full Self-Driving software after four collisions were reported, including a fatal crash this year. According to Tesla, its cars have traveled over 1.6 billion miles utilizing the Full Self-Drive software.

Profit Margin

While the attention from Wall Street has shifted from the Cybercab event, analysts from Barclays emphasize a return to fundamentals for Tesla. They expect to see a 14.9% automotive gross margin, excluding regulatory credits, for the three-month period ending September 30, compared to the 14.6% seen in the previous quarter. Despite cutting prices in an effort to boost demand amid rising interest rates, these measures have yielded limited success, especially in China.

Annual Deliveries

Tesla faces the challenge of surpassing last year’s delivery figures and is expected to update its annual forecast. To avoid a slight decline in annual deliveries, the company must deliver more than 516,000 vehicles during the fourth quarter, a period noted for strong U.S. car sales. Analysts project deliveries might see a slight dip, estimating a drop of 0.3% to 1.8 million units for the year.

Competition in China

The company faces significant competition in China from local manufacturers such as BYD, which offer cheaper alternatives. Nonetheless, Tesla's sales in China increased by 66% in September, achieving 72,000 units, its best month this year. The company’s third-quarter sales in China rose 12% due to local financing options and government trade-in subsidies. Some analysts believe that with this momentum, Tesla may surpass last year’s sales figures in China during the fourth quarter.