Tesla earnings for Q3 beat forecasts, helped by an unexpected spike in revenue generated from the sale of regulatory credits. Tesla stock rose.


Investors will also look for updates on Tesla‘s (TSLA) new factories, China demand, the Cybertruck, self-driving technology and batteries.

Tesla Earnings

Estimates: Analysts expect Tesla earnings per share to jump 49% to 55 cents as revenue grows 31.5% to $8.29 billion, according to Zacks Investment Research. That would make Q3 the fifth straight quarter of adjusted profits per share, as it looks for sustained profitability.

Results: EPS of 76 cents on revenue of $8.77 billion. Automotive revenue climbed 42% to $7.6 billion, and regulatory credits nearly tripled to $397 million.

The amount earned from regulatory credits is far higher than expected. In July after reporting Q2 results, Tesla said credits in the second half of the year would likely equal Q2’s $428 million. But Q3 alone has nearly matched that already.

Average selling price declined slightly due to product mix shift from Model S and Model X to the cheaper Model 3 and Model Y.

On Oct. 2, Tesla disclosed its best quarter yet for deliveries: 139,300 in Q3. In a potential boost for Q4, Tesla now plans to start exporting lower-cost, made-in-China Model 3s to Europe in October.

Full-year deliveries are on pace to hit a targeted half million for the year, after Tesla skillfully navigated the coronavirus pandemic, Wedbush analyst Daniel Ives said Monday.

“Pent-up China demand and pockets of strength within Europe remain the linchpin to the demand resurgence that Musk & Co. have seen over the past few quarters,” Ives said.

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Ahead of Q3 earnings, Ives forecast a Q3 bottom-line beat. “Tesla’s improved manufacturing efficiency and shining Giga 3 success in China will be on full display,” he said in a note to clients. The analyst backed a neutral rating on Tesla stock and hiked his one-year price target to 500 from 475.

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Tesla Stock

Shares rose 2.5% late after closing up 0.2% at 422.64 in Wednesday stock market trading, after four straight losing sessions. Tesla stock is off the 52-week high. As of Wednesday’s close, it now has a proper handle in its consolidation, giving it a 466 buy point.

IBD Leaderboard stock Tesla is holding above the 50-day line and well above the 200-day line. The relative strength line, which gauges a stock’s strength against all stocks in the S&P 500, is just below recent record highs. The RS line is the blue line in the chart shown

Tesla stock tends to be volatile around earnings, but IBD’s options strategy is designed to limit risk around earnings.

Tesla Earnings Guidance

More than Q3 results, Tesla’s guidance on full-year production and deliveries will be key. So will any update on plans for factories and electric cars in 2021.

In particular, investors will want to know if Tesla’s Berlin plant is on track for completion in mid- to late 2021. The factory is Tesla’s first in Europe, one of the world’s biggest markets for electric vehicles.

Notably this year, the coronavirus pandemic briefly shut down Tesla’s Fremont, Calif. factory, where all European models are manufactured.

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Meanwhile, Tesla expects to build its space-agey Cybertruck at its newest Gigafactory in Austin, Texas. That factory is likely to open in 2021.

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China Demand ‘Front And Center’

More than anything, Wedbush’s Ives is watching the trajectory of demand for Tesla electric cars in China. He’s of the view that demand is starting to accelerate even as local rivals like Nio (NIO), Li Auto (LI) and Xpeng (XPEV) threaten its dominance. Tesla’s brand-new Shanghai factory remains the “crux of success” in this region, he said in Monday’s note.

Ives estimates a run rate of 150,000 unit deliveries in the Shanghai’s factory’s first year.

By early 2022, he expects China could represent more than 40% of Tesla’s global sales. Besides the production and delivery ramp in the country, Ives highlighted “major battery innovations” out of the Shanghai plant as another item to watch.

Lastly, he expects surprise price cuts on Tesla cars in the U.S. and China to stimulate sales “as the macro starts to improve over the next six to 12 months and the lockdown conditions ease globally.”

Not everyone is equally optimistic about Tesla’s prospects. Six analysts on Wall Street rate Tesla stock a buy, 10 have a hold and three have a sell, per Zacks.

Tesla Taxis, Tesla Batteries

Some on Wall Street are looking for updates on Autopilot, Tesla’s advanced driver-assist system. In a recent note, analyst Adam Jonas of Morgan Stanley suggested Tesla could be gearing up to offer electric cars for a ride-hailing service.

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For investors, that is an increasingly key issue as rivals General Motors (GM) and Waymo ramp up robotaxi efforts.

Meanwhile, Cowen analyst Jeffery Osborne hopes for an update on battery costs after Tesla’s battery technology day in September. That event set up lofty hopes for a million-mile battery but largely disappointed.

Instead, Tesla merely insisted that improvements in battery technology will allow it to launch a low-cost Tesla down the road.

Find Aparna Narayanan on Twitter at @IBD_Aparna.


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