Tesla Q3 Earnings: Lower-than-anticipated results disappoint investors

Tesla's Q3 production and delivery numbers were lower than expected due to planned factory upgrades. The company's profit margins also fell, leading to concerns about its high valuation. Tesla's stock price may decrease in the future.

In my recent articles, I have taken a pessimistic view of Tesla's performance in the automotive market due to slowing demand and increased competition. However, the company's third-quarter results have shown that even my expectations were too optimistic.

Historically, Tesla has seen strong production numbers in the third quarter, surpassing other quarters. This could be attributed to consumers being more likely to purchase new vehicles during the summer months. However, in FY2023, this seasonality was disrupted, with Q3 production slightly lower than Q1 and significantly lower than Q2.

During the earnings call, the CFO mentioned that the company's performance in the third quarter was impacted by planned downtimes for factory upgrades. These upgrades lasted longer than previous years, resulting in a 10% decline in vehicle production compared to the previous quarter but an 18% increase year-over-year.

In terms of vehicle deliveries, Tesla reported a 7% decline in total deliveries for the quarter compared to the previous quarter, but a 27% increase year-over-year. Model 3/Y deliveries saw a 6% decline quarter-over-quarter but a 29% increase year-over-year, while Model S/X deliveries experienced a 17% decline quarter-over-quarter and a 14% decline year-over-year.

Tesla's total sales for the quarter amounted to $23.35 billion, showing a 6% decline compared to the previous quarter but a 9% increase year-over-year. The automotive segment revenue was $19.63 billion, down 8% compared to the previous quarter. The Energy Generation and Storage segment saw a 3% increase in revenue from the previous quarter and a significant 40% increase year-over-year. Service and Other revenue also experienced a 1% increase from the previous quarter and a 32% growth year-over-year.

The company's gross margin was 17.9%, with the non-GAAP automotive gross margin at 16.3% and non-GAAP diluted EPS at $0.66, which was lower than expected by Wall Street. Tesla attributed these metrics to factors such as reduced average selling prices, increased operating expenses, production-related costs, and negative foreign exchange impacts.

During the earnings call, CEO Elon Musk and CFO Vaibhav Taneja focused more on discussing future projects like the Cybertruck and AI rather than strategies to restore the core business segment's margins. While Tesla remains on track for Cybertruck deliveries later this year, Musk has acknowledged that scaling and making the Cybertruck profitable will be challenging, especially considering the initially announced price may be too low.

Despite the challenges faced in the quarter, Tesla maintained its delivery target of approximately 1.8 million vehicles for FY2023, aligning with market consensus. However, I anticipate that the company will struggle to maintain its current low margins in FY2024, making current earnings estimates overly optimistic.

The pricing war in the auto market remains a significant challenge for Tesla, and I believe the company will continue to lower prices to justify its plans to expand production capacity and increase market share. The recent price cuts in October, along with new wage terms for German workers, may further squeeze margins.

Additionally, Tesla has seen a decline in its China-made vehicle sales, indicating that it cannot solely rely on the growth of the Asian market and pricing power there. This decline, coupled with the fall in Tesla's EBITDA margin, may lead to a contraction in the EV/EBITDA multiple.

Based on these factors, I believe Tesla's stock price should be significantly lower than its current valuation. While there are potential upside risks, such as diversification into different industries and the release of the Cybertruck and AI technology, I am unable to upgrade the stock at this time based on the existing data.

In conclusion, I believe Tesla's multiples should align with its margins, indicating a lower stock price.