Biggest Event of Q4: Tesla’s Earnings Are on Deck

While all of the so-called “Magnificent Seven” will have closely watched quarterly earnings reports, the most significant one won’t likely be from Apple or even the much-beloved NVIDIA. Rather, I believe that Tesla’s earnings will set the tone for the remainder of the year.

Tesla’s quarterly earnings events are always high-stakes, but this time it’s particularly notable as the United Auto Workers continue to dig their heels in and the “Big Three” Detroit automakers (Ford, General Motors, and Stellantis) are reeling from a shortage of qualified workers.

This could put Tesla in the pole position, but some experts on Wall Street aren’t especially sanguine about Tesla’s near-term prospects. For instance, one analyst slapped a $165 price target on Tesla stock, which is quite pessimistic if the current share price is close to $250.

Morgan Stanley analyst Adam Jonas summed up the lack of enthusiasm on Wall Street surrounding Tesla, observing that sentiment “skews cautious” on Tesla’s earnings for the remainder of the year. Beyond that, Jonas claimed that many investors “are wondering if Tesla can grow earnings at all” in the next year.

Adding fuel to the bearish argument is the Chinese Passenger Car Association’s announcement that Tesla delivered 74,073 vehicles in September from its plant in Shanghai. That’s down from roughly 84,000 delivered in the prior month.

Courtesy: Cox Automotive, Barron’s

Then, there’s the report from Cox that Tesla’s third-quarter 2023 share of the U.S. electric-vehicle market was 50%, down from 59% in the second quarter. Thus, Tesla dominates the field, but not by as wide of a margin as it previously did.

In addition, some investors are nervous because Tesla’s profit margins are declining. This is the inevitable result of Tesla cutting the prices of its most popular electric-vehicle models by 17% to 27% during the past year.

That last point is a major focus among analysts and some investors. Indeed, Tesla’s third-quarter earnings report will be “all about margins,” according to Gene Munster of Deepwater Asset Management.

Consequently, analysts are chiming in with not-so-optimistic forecasts for Q3. For example, UBS analyst Joseph Spak expects Tesla to report “a moderate EPS miss,” while Citigroup analyst Itay Michaeli is bracing for a “neutral to slightly negative” market reaction to the automaker’s quarterly results.

Courtesy: Bloomberg

Yet, Tesla remains a member of the elite group of technology mega-cap companies known as the “Magnificent Seven.” If Tesla is one of seven pillars holding up the entire stock market, then perhaps it’s time to seek wealth outside of large-cap index funds.

The point here is that skeptical analysts and investors are finally starting to question whether these seemingly untouchable, richly valued tech names can continue to prop up the equities market. Could a few disappointing earnings reports cause the entire house of cards to collapse?

It’s a possibility worth considering. That’s why Tesla’s earnings report, which is set to be released on October 18, might be considered the most significant event of the fourth quarter. It might serve as a bellwether as investors adjust their expectations for the soon-to-follow quarterly reports from Apple, NVIDIA, and so on.

Personally, I’m watching from a distance with amusement and the sense of calm that comes from owning tangible assets that aren’t too closely correlated with the “Magnificent Seven.” That way, I’ll be just fine even if Tesla’s third-quarter results are less than magnificent.