Tesla Stock Slides 15% in October: Can Musk Turn It Around with Q3 Earnings?

Tesla (TSLA) stock has lost more than 15% so far in October, and has turned negative for the year with a loss of more than 12%. The company had three key events lined up for this month: the Q3 delivery report, the “We, Robot” product launch event, and its Q3 earnings report - only the last of which is still remaining on the docket.

Tesla’s Q3 deliveries failed to impress; while they rose YoY for the first time this year, the number still fell short of Street estimates. The “We, Robot” robotaxi event – on which a lot was riding – was an even bigger letdown. There was a lack of concrete timelines about the robotaxi and the other futuristic products that Tesla is building, leading to a nearly 9% fall in its stock price on Oct. 11.

TSLA Stock Collapsed After the Robotaxi Event

While the advancements in its Optimus humanoid looked impressive, it later turned out that the robot prototype wasn’t fully automatic, but was remote-controlled. 

If that wasn't enough, Tesla faces yet another National Highway Traffic Safety Administration (NHTSA) investigation over its full self-driving (FSD) software. The probe comes after a fatal accident where a pedestrian was killed when the car was on FSD. Among others, the NHTSA will investigate “the ability of FSD’s engineering controls to detect and respond appropriately to reduced roadway visibility conditions."

While Tesla CEO Elon Musk sees autonomous driving as a key driver of Tesla’s valuation, the product has frequently been in regulatory crosshairs - with even its name under scrutiny, as the software is not “fully autonomous,” as the moniker might suggest.

This week, Tesla will release its Q3 earnings on Wednesday, after the close of trading. Here’s what analysts are expecting from the report, and whether the company can turn around the negative sentiments with its Q3 results.

Tesla Q3 Earnings Preview

Analysts expect Tesla’s Q3 revenues to rise 10% YoY to $25.6 billion. However, its earnings per share (EPS) is expected to fall 13.2% to $0.46 in the September quarter. Notably, Tesla’s profits have gradually fallen over the last few quarters, as the price war has taken a toll on its once industry-leading margins.

These price cuts have helped the company spur its deliveries, and without them, its shipments might have fared even worse; however, the price cuts have come at a steep cost. Tesla’s operating margins and free cash flows have fallen sharply, as the company has prioritized growing shipments over margins in the short term – while aiming to make up in the long term by selling software subscriptions to its customers.

What to Expect from Tesla’s Q3 Earnings

During Tesla's Q3 earnings call, I would watch out for Musk’s comments on Tesla’s delivery outlook – both for the short term and the long term. 

During the Q1 earnings call, the billionaire sounded confident that Tesla should be able to report a YoY rise in 2024 deliveries. The company hasn’t provided hard guidance, but the deliveries are down YoY in the first nine months of the year, and managing annual growth in deliveries does not look like a cakewalk.

There are also questions over Tesla’s long-term delivery outlook amid slowing electric vehicle (EV) adoption and rising competition. Musk once touted a long-term delivery growth of 50% and a goal of reaching 20 million annual deliveries by 2030. The company has since officially dropped the 2030 delivery goal, and virtually given up on the 50% delivery growth target after missing it for three consecutive years.

Markets might want to hear Musk’s comments on its long-term delivery forecast, especially its outlook in China, where it is battling intense competition – including from BYD (BYDDY), a company Musk mocked in the past. Musk might also face questions on the robotaxi rollout, given the NHTSA probe, as well as the company's plans to better monetize its software capabilities. 

TSLA Stock Forecast Before Q3 Earnings

Piper Sandler reiterated its “Overweight” rating on Tesla ahead of the Q3 confessional, even as it pointed to dwindling expectations about robotaxis adding to the company’s earnings over the next few years. Barclays, on the other hand, maintained its “equal weight” rating, but expects Tesla to beat Q3 estimates.

The overall sell-side sentiment towards TSLA continues to be quite subdued. Only 9 analysts covering the EV stock rate it as a “Strong Buy,” while 2 consider it a “Moderate Buy.” Eighteen analysts rate TSLA as a “Hold,” while the remaining 8 have deemed it a “Strong Sell.”

Tesla’s mean target price is $205.02, which is below the current price levels. While it's not unusual for Tesla to trade above its consensus target price, this time around, it's not due to a parabolic, Nvidia-like (NVDA) rally, where the stock has run ahead of the target price; instead, it's due to bearishness among analysts.

As I noted previously, Tesla is a “present imperfect, future uncertain” kind of story. While the EV business that accounts for the bulk of Tesla’s earnings continues to sag, the future products are still at least a few years away from making any meaningful contribution to its earnings.

The ball now lies in Musk’s court, and he has to convince markets about the outlook for the EV business while also selling the long-term story of pivoting to a robotics and supercomputer company. Failing on either front might not help revive the negative sentiments around TSLA stock.

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On the date of publication, Mohit Oberoi had a position in: TSLA, NVDA. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.