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Tesla has delivered a strong set of Q3 results that beat expectations. Earnings per share was $0.72 vs. $0.59 expected, profits were 20% higher than expected, and revenue growth was at its highest level for a year, although revenue narrowly missed analyst estimates. Profit margins were also stronger than expected. EV production and deliveries beat expectations, production rose by 9% and deliveries by 6%. However, the cybertruck was the real jewel in the Tesla crown last quarter, it was the third-highest selling electric vehicle in the US. It is far and away the best-selling utility vehicle of its size. The first and second best selling electric vehicles in the US are, you guessed it, the Tesla models Y and 3 respectively. The question is, with legacy car markers rapidly improving their EV offerings, and Chinese EV makers also trying to eat into the European and US EV markets, how long will Tesla maintain its crown as the world’s leading EV marker?
Tesla impresses with positive outlook
The outlook is always one of the most important aspects of an earnings report, and the 9% plus surge in post-market trading of Tesla shares, suggests that the market likes what it hears. The company is still planning on putting its more affordable models into production in the first half of 2025, and these new models will ‘utilize aspects of our next generation platform’. This will be in focus for investors, since most of 2024’s earnings reports have been centered on talking about the next gen platform rather than delivering earnings growth. The fact that Musk is now moving towards a path where he can monetize this new platform has had a positive impact on the share price. The company also said that it expects slight growth in EV deliveries this year vs. 2023.
2024 delivery target still a major hurdle
Since Tesla slipped on its vehicle delivery targets in the first half of this year, Q4 will need to see mega delivery growth to meet this target. It would need to deliver 30,000 more vehicles in Q3 2024 vs. Q3 2023, to meet its self-imposed target of 1.8 million vehicles. Thus, Tesla must be optimistic that 1, demand remains strong for its Model Y and 2, that it can meet a hefty delivery schedule. Tesla’s energy business is also doing well. Sales of Tesla Powerwall chargers are set for a record second quarter of growth, and it is working on a new Powerwall 3 product, which could boost sales further down the line.
Margin boost to win over investors
The most impressive aspect of these earnings is the automotive gross margin for Q3, which came in at 17.1%, vs. expectations of 14.9%. Tesla is saying that margins are being boosted by lower cost per vehicle, in terms of production and materials. This is a sign that lower levels of inflation is starting to have an impact on corporate bottom lines. Tesla said that it is also seeing an uplift in demand for its AI and self-driving technology, which could also boost margins.
Overall, what is not to love about these earnings? There’s actual delivery growth, gross margins are moving higher, the cost of production is coming down and Tesla is regaining some of its pricing power. The lower cost of raw materials, which was flagged in this earnings report, along with more efficiency in its EV production line, is a winner with traders, as the stock continues its march higher.
Tesla’s share price is volatile, and we mentioned earlier this week, that if Tesla exceeded expectations that the stock price could erode losses from earlier this month. It has already done this, and there could be further upside to come, the average move one day after Tesla releases earnings is more than 10%.
Tesla bodes well for the rest of the Magnificent 7
This is a positive start to earnings season for the Magnificent 7, but will it be enough to boost the rest of the market? Over the past month, the Magnificent 7 have underperformed the broader S&P 500 and the Dow Jones Index, however, so far this week, the Magnificent 7 are leading the way. Tesla is likely to give the group of tech giants a further boost on Thursday, and it will be interesting to see if it lifts the broader US indices.
Tesla results and what they tell us about changing demand for luxury
Another way to look at Tesla’s results is through the prism of consumer trends. Tesla is seen as a bellwether for EV demand. After contracting in recent quarters, these results suggest that demand for EVs are back. Added to that, the Tesla results compare favorably with Kerring’s. The luxury goods company said that income for 2024 would be at the lowest level for 8 years, as sales from its flagship brand, Gucci, tumble sharply. Sales at Gucci were 25% down in Q3 vs. a year ago. Kerring’s share price is down 40% YTD, compared with a 14% decline for Tesla, although Tesla’s share price has risen by more than 25% in the last six months.
The contrast in Kerring’s and Tesla’s fortunes could tell us something about the ‘new luxury’. Consumers around the globe are showing fatigue with luxury handbags, shoes and silk scarves. They are also losing interest in high performance luxury cars like Porsche and Audi. This suggests that consumers are avoiding ultra exclusive products with high price points, or cars that may have good horsepower but do not have the best digital features. Instead, the rising fortunes of Tesla suggest that consumers are shifting their preferences towards reasonably priced products, utility, tech capabilities, and the promise of bigger and better tech features to come, which Tesla is promising with its next generation platform. This could be the start of an interesting new era for the global consumer and is worth watching.
