Financial Report Preview | Robotaxi Event Mishap "Backfired" Can Tesla Regain Investor Confidence with Q3 Financial Report?

According to the latest financial report of Tesla (TSLA.US) for the third quarter, after the highly anticipated "We, Robot" event ended in failure, investors and analysts are paying close attention to the company, hoping for answers to many questions raised during the event.

Tesla is set to announce its latest performance after the US market closes on October 23rd. Analysts expect Tesla's Q3 revenue to increase from $23.35 billion in the same period last year to $25.41 billion, with net profit expected to decrease slightly from $1.85 billion in the same period last year to $1.68 billion, based on Visible Alpha's data.

Delivery Data

Earlier this month, Tesla released third-quarter delivery data that fell short of expectations but showed a year-on-year growth, reversing the decline seen in the previous two quarters.

The company's data revealed that it delivered 462,890 vehicles in the third quarter, a 6.4% increase compared to the same period last year. Analysts had expected 463,310 vehicles, showing an improvement from the approximately 9% and 5% year-on-year declines in the previous two quarters.

This growth indicates a recovery for Tesla in the Chinese market, where the company has been facing intense competition from local electric vehicle competitors. Tesla has been strengthening its promotional activities in the region, offering discounts and zero-interest loans for some models.

However, Tesla's stock price declined on the day the data was released. Wedbush Securities analysts explained that while the delivery report exceeded their expectations, it was a "step in the right direction." They acknowledged that both they and the broader market were hoping for Tesla to exceed expectations by a larger margin.

Robotaxi Event

More disappointingly, against the backdrop of Wall Street's high expectations for Tesla's growth in autonomous driving software, Robotaxi, and artificial intelligence, the company's Robotaxi event left investors with a negative impression.

The company's Robotaxi event this month was highly anticipated. Musk believed that Tesla could offer customers autonomous taxi services at a rate of 30 to 40 cents per mile. Some optimistic analysts even suggested that this service's price could be significantly reduced to 25 cents per mile, compared to the standard rates of $2 per mile in Western markets like Uber (UBER.US). Importantly, this price is lower than the range of 70 cents to $1 per mile for driving a private car.

Despite these ambitious plans, Tesla's stock price further declined by about 8% after the Robotaxi event, as investors felt the company did not provide sufficient details on its listing strategy, ride-sharing economy, and updates on autonomous driving softwareOn the event, Tesla only showcased the Robotaxi prototype "Cybercab", the autonomous freight vehicle "Robovan", and Musk's prediction on when Tesla's self-driving software will be approved, which is a step towards the legal operation of Robotaxi.

Analysts pointed out that the lack of details on whether Tesla plans to operate its Robotaxi fleet or sell it to customers, as well as the absence of expected low-cost Tesla model releases, are among the factors contributing to the stock price decline.

Wall Street Views

JP Morgan analyst downgraded Tesla to "underweight" with a target price of $130. The analyst stated on the second day of the event that the event "clearly lacked details", confirming their view that the rebound in Tesla's stock price from the lows earlier this year was mainly driven by excitement over the recent Robotaxi activities rather than electric vehicle sales or performance.

Analysts at Wells Fargo also agreed with this view, writing that Tesla's Robotaxi activities were essentially "dazzling" but "lacked substance".

Adam Jonas from Morgan Stanley mentioned that he has been looking for quantitative data on Tesla's FSD improvements and business strategies for regulated and unregulated ride-sharing services.

"In general, we are disappointed with the content and details of the event. Therefore, we expect Tesla to face pressure after the event."

However, Wedbush remains optimistic, maintaining an "outperform" rating and a target price of $300, stating that they will buy Tesla shares on "any weakness" following delivery data and Robotaxi activities.

Analysts have differing views on Tesla's stock, with 9 out of 19 analysts tracked by Visible Alpha giving a "buy" rating, 7 giving a "hold" rating, and 3 giving a "sell" rating. The average target price is $223.22.

Unexpected Surprises

After the disappointing Robotaxi event failed to boost investor confidence, Tesla's profitability is back in focus.

Logically, the company needs to sell vehicles to support its FSD plan and the entire ecosystem. However, gross margin may be a key metric to watch.

While Tesla is expected to continue benefiting from regulatory credit sales – a part of sales that exceeded many analysts' expectations in the previous quarter – the market is concerned that aggressive pricing strategies in the face of intensifying competition may squeeze profit margins. It is worth noting that Gordon Johnson, an analyst at GLJ Research, predicts that Tesla's gross margin will drop to 15%, while the company's gross margin in the second quarter was 18%.

Despite the pessimism towards profit margins, the company may still bring other positive surprises. One area that has been closely watched by the market is energy storage, a business that can provide necessary support in Tesla's strategic shift. The company deployed 6.9 GWh of energy storage in the third quarter, a 72.5% increase from the 4 GWh in the third quarter of 2023, indicating strong performance in this areaIn addition, during the earnings call, Musk's detailed insights on the large-scale financing and production strategy of Robotaxi and Optimus robots may still have a positive impact on the stock, even if revenue and profits may not necessarily exceed expectations