<Results Analysis> 3Q23 results a miss, management turning more cautious
- 3Q23 Non-GAAP earnings missed consensus by 20%, dragged by weak deliveries and even weaker gross margins amid guided factory shutdowns and price cuts
- Management reiterates 2023 vehicle delivery target of 1.8m, but is turning cautious on future outlook amid rising interest rates. Pushback on catalysts casts a shadow e.g., delayed launch of Cybertruck, muted guidance on the timing of capacity expansion plans.
- In the near-term, we anticipate market volatility on continued margin compression concerns as Tesla continues to reiterate on “maximising volumes” with a focus on affordability. Maintain HOLD with lower TP of US$255 (was previously US$275) on limited positive catalysts in the near-term.
3Q23 results was a miss, with negative developments such as pushback in Cybertruck ramp and muted guidance on the timing of capacity expansion plans. Tesla saw 3Q adjusted EPS (non-GAAP) a miss to consensus by 23% at US$0.66 per share (versus estimates by US$0.86, versus 2Q23 at US$0.91). Whilst a softer 3Q23 was expected and guided on the back of planned factory shutdowns/upgrades, the results were weaker-than-expected with automotive sales missing estimates by 9% and gross margins coming in at a low of 15.7% (versus 2Q23 of 17.5%), earmarking among the lowest gross margins seen by Tesla since its inception. Whilst COGS per vehicle has decreased to US$37.5k (-1% q-o-q, -5% y-o-y) due to continued cost reduction efforts and decline in material costs and freight, gross margins still took a hit due to factory shutdowns and ASP price cuts (3Q23 ASP saw -2.5% q-o-q, -17.4% y-o-y impact). Operating profit margin also came in lower-than-expected at 7.6% (versus estimates of 11.3%, 2Q23 of 9.6%), on the back of higher R&D expenses for Cybertruck production testing, AI technology development and more. Management hints of continued high R&D expenses going forward, on the back of continued investments in battery cell production, FSD and AI development. Beyond the 3Q23 financial results, we also saw some negative developments such as (i) pushback in Cybertruck mass-market sales (previously by 2023 to 2024 and to hit 250k units by 2025) amid production and pricing challenges, and (ii) muted guidance on the timing of capacity expansion plans (e.g., Berlin, Austin) and construction of its new Mexico gigafactory. Management has provided little guidance on the timing of its capacity expansion plans, and for the case of its new Mexico plant, management has reiterated the importance of the health of the economy before going ahead with the construction of its Mexico plant.
Management reiterates 2023 targets but has turned more cautious going forward; expect share price volatility on continued margin compression and limited positive catalysts in sight. Post 3Q23 results, Tesla reiterated its 2023 guided 1.8m vehicle volume sales. The market expects sequential improvements in 4Q after its 3Q factory shutdowns/upgrades, in which we believe Tesla is well on track to meet its 2023 vehicle target (YTD 74% of target). Going forward, investors will continue to focus on margins and on 2024 vehicle delivery guidance, and more importantly, whether Tesla can maintain a healthy gross margin amid delivery growth. Presently, consensus expects 2.3m vehicle volume sales for 2024, representing 26% growth y-o-y (versus 37% growth in 2022A-2023E). We think there could be downside risks to current consensus estimates given the lack of mass-market launches in 2024 (in lieu of pushback in Cybertruck truck launch, which is likely only to go mass-market in 2025) amid the challenging macroeconomic environment and heightening EV market competition (especially from BYD). Furthermore, Tesla has emphasized on its goal of “maximising volumes” and ensuring affordability of its cars in an environment of high interest rates which could suggest further price cuts and downside risks to ASPs and margins. Longer term catalysts include further ramp up in battery cell production, FSD and AI development. In the near-term, we anticipate market volatility on continued margin compression concerns. Maintain HOLD with lower TP of US$255 (was previously US$275) on muted management guidance, potential downside risks to current consensus estimates, and limited positive catalysts in the near-term.