Since August, the Tesla share price appears to have plateaued. While the pandemic caused operational trouble for the company, over the summer its stock price rocketed to heights that even astounded its founder, Elon Musk. Its current company market capitalisation is around $410 billion, but some critics say that’s overvalued and after a disenchanting battery day in September, all ears will be on the Q3 earnings call tomorrow to see what’s up ahead.
Is demand rising or falling?
Tesla previously stated a sales target of 500,000 vehicles throughout 2020. It’s not quite reaching it, but considering it’s battling through the pandemic and had to deal with forced factory closures, this may be forgiven. Morgan Stanley analyst Adam Jonas expects Tesla to reach sales of 489,721 for the year, so not too far off the mark. There’s a visible rise in the number of Tesla’s on the roads, which bear witness to the popularity of the brand.
This is a crucial point in its Q3 earnings call because increasing demand will reinforce the viability of its high valuation. There’s speculation that demand is falling, and the Covid-19 obstacles to production are merely an excuse. Despite having the capacity to produce over 150,000 Model 3 and Y vehicles in Q3, Tesla reportedly only delivered 124,100.
Musk also made a surprise price cut in its luxury sedan Model S, knocking $2570 off the starting price. He brought the price down to $69,420, and according to TechCrunch Musk chose the number as a joke, as in “69” makes reference to a sexual position, while “420” references cannabis culture.
He also dropped the price in response to a competitor attempting to undercut the Model S starting price. Lucid Motors is bringing out a new Electric car in 2022, called the Lucid Air, which will cost $77,400 minus a $7,500 tax credit. With most buyers qualifying for this discount, the starting price would fall below the price of the Model S.
Musk’s joking around, and unpredictability, makes shareholders and analysts nervous, but his fans love it. The price cut may entice more buyers and increase the chances of it reaching its 500,000 sales goal.
Adjusted profit for Q3 2019 was 33 cents a share. 37 analysts, recently polled by FactSet, show a consensus adjusted profit of 54 cents a share for the Q3 2020. Meanwhile, a poll conducted by Estimize, which is a crowdsourcing platform gathering Wall Street data and analyst views from a spectrum of areas, showed expectations of an adjusted profit of 65 cents per share.
If either of these proves true, then it will be the fifth consecutive GAAP and adjusted per-share profit in a row. This was a major factor in the growing expectation that it would be admitted to the S&P 500 index last month. Unfortunately, it was overlooked, but a continuing profitability trend will help boost its future chances.
Additional key points of note
Also up for discussion is Autopilot, Tesla’s suite of advanced driver-assistance systems. Shareholders keenly await news on progress in this department because it’s the advancement needed to reach full autonomous status, which will eventually lead to self-driving cars. Consumers and analysts want to know whether the company intends to offer a broader insurance policy to consumers, based on data generated from its Autopilot-related safety enhancements.
Morgan Stanley’s Jonas also said he expects Tesla to be in a better position to offer a ride-hailing system, which will also hopefully be covered in the call. As will some key points from September’s battery day, such as the new top-of-the-line version of the Model S, for 2021, along with an increasingly affordable vehicle for less than $25,000.
While consumers are interested in what’s next, Wall Street will focus on gross profit margins because better than expected results are likely to send shares higher again. It will also back the vote that Tesla’s lead over competitors is escalating. Q4 expectations will be considered along with how the company plans to price its carbon credits going forward. As is always the case with Tesla, the story matters as much as the numbers and tomorrow’s conference call is sure to be enlightening.