Tesla (TSLA) Q3 Earnings: What to Expect

Close-up of Tesla logo
Credit: Moose - stock.adobe.com

Tesla (TSLA) shares have skyrocketed as much as 50% in the past five months, rising from around $555 in May to a recent high of $835. While the stock is still about 10% below is 52-week high of $900, that rate of volatility is par for the course for Tesla.

What will be the stock’s next direction? Investors will soon learn the answer to that question when the luxury electric car manufacturer reports third quarter fiscal 2021 earnings results after the closing bell Wednesday. While Tesla stock has performed strongly over the past few weeks, it has only caught up to the S&P 500 index in terms of year-to-date performance, demonstrating how much ground the company has had to make up.

Some of the recent bullishness stems from the fact that Tesla just reported its highest vehicle sales in China in two years. Last week Tesla announced it sold 56,006 China-made vehicles in September, marking a 25.5% increase from August's sales of 44,264 vehicles. The rise in vehicle sales maintains the strong trend which included record global vehicle deliveries of 241,300 in the third quarter. The better-than-expected sequential increase was driven by strong sales of the Model 3 and Model Y, which offset weakness in Model S and Model X.

Investors are nonetheless eager to hear about guidance for the fourth quarter and full year. After deliveries reached 500,000 vehicles in 2020, Tesla has projected to grow vehicle deliveries between 50% to 70% in 2021. Estimates has pegged the rate at 900,000. And the market wants to know how much profits can this growth produce. Elsewhere, updates on Semi and the Cybertruck timelines, as well as building progress for Texas plant and the one being built in Germany, will also determine har far and how fast Tesla stock can drive from here.

In the three months that ended September, Wall Street expects Tesla to earn $1.50 per share on revenue of $13.5 billion. This compares to the year-ago quarter when earnings came to 76 cents per share on revenue of $8.77 billion. For the full year, ending in December, earnings are expected to rise 144% year over year $5.48 per share, while full-year revenue of $50.66 billion would rise 60.60% year over year.

Tesla’s increased focus on its growth strategy, namely production and profit margins, have been a key factor in the company’s recent success and the expected 144% rise in full-year profits. The company has achieved a production capacity run rate of more than 90% compared to each of the prior four quarters. In the second quarter, Tesla reported total revenues of $11.86 billion surged 98% year over year, marking an acceleration of 15 percentage points from the Q1, while adjusted EPS of $1.45 beat by 47 cents.

This was the company’s eight consecutive quarter of profitability, netting over $1 billion in net income. Just as impressive, operating margin was 11.0% of sales compared to 5.4% a year ago. Automotive gross margin was slo strong, coming in at 28.4%, more than two percentage points higher than consensus of 26.1% and 25.4% a year ago. The company also affirmed its multi-year deliveries guidance of 50% average annual growth.

On Wednesday Tesla will need to keep its foot on the production/delivery gas pedals as it relates to Q4 guidance. Investors will also dissect operating margin to assess if Tesla can continue to grow that metric over time to reach industry-leading levels, particularly amid plans related capacity expansion and localization.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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