Tesla Stock Slides After Revenue Miss, Musk Maintains Optimism

Key Points

-Tesla EPS (earnings per share) came in at $1.05, compared, to 99 cents as expected by analysts.
-Net income came in at $3.33 billion increasing by 55% for the year.
-Supply chains continue to hamper sales, but the outlook continues to improve into the next quarter.
-Revenue came in $21.5 billion

Tesla (NASDAQ: TSLA) continued to witness revenue growth, but fell slightly short of expectations, as demand from Asia, particularly China, did not live up to expectations.  Tesla’s stock has been quite resilient through the year, despite the broader market falling precipitously as interest rates, and contracting liquidity, has led to a pullback in investor sentiment. Tesla’s strong run of form clearly shows the brand has staying power, and that it is unlikely to witness any major demand decline moving forward.

Sales continue to remain strong

Model S/X production continued to increase rapidly with sales coming in 123% higher YoY, with total sales coming in at 19,935. Meanwhile, model 3/Y production increased by 51%, with 345,000 vehicles produced. Total vehicle sales increased by 51% for the year, and total vehicle leases came in at 135,000 increasing by 24% for the year. Finally, days of supply increased or global vehicle inventory increased to 8. Store and service locations increased by 16%, and the Mobile service fleet increased by  29%. Supercharger stations increased by 32%, and supercharger connectors increased by 33%. 

Tesla’s solar operations deployed (MW) increased by 13% YoY, and storage deployed increased by 62%, to 2100. Tesla is expected to significantly improve energy storage capacity at the 40 GWh Megapack factory, in order to meet continuing demand.

Tesla continued to be hampered by supply chain issues and bottlenecks for the quarter, although installed capacity improved for the quarter, now hovers around 1.9 million. The Shanghai plant has been the biggest source of bottlenecks, and shutdowns have hampered operations. But that is set to end now, as the economy starts to slowly open up.

“I can’t emphasize enough we have excellent demand for Q4 and we expect to sell every car that we make for as far into the future as we can see,” Musk said. “The factories are running at full speed and we’re delivering every car we make, and keeping operating margins strong.”

Demand continues to come in from North America and Europe, but China has been witnessing setbacks, as lockdowns, and a recessionary environment has resulted in lower-than-expected sales. But China's electric car market is the largest in the world, with 3.3 million sales in 2021. And Tesla will be keen to gain market share there. 

Improving Margins Set The Tone For The Future

Gross margins increased 47% YoY and continued to be relatively healthy coming in at 28%, an increase from 25% in the same quarter in 2021. Meanwhile, net profit margins increased by around 180 basis points to 16%, as both cost of sales, and operational costs fell for the quarter. A number of costs including a negative foreign exchange impact of $250 million, higher raw material costs, logistics, and warranty costs continued to weigh on margins. Free cash flow came in at $3.3 billion, and total marketable securities now stand at $21 billion.

The global automotive market remains strong, as new car costs continue to moderate, and a record age of vehicles on the road leads to improving sales. European car sales rose by 8% during the month of September, meanwhile, US car sales slowed down during the third quarter.  US car sales are being primarily hampered by supply chain overhangs, and Ford NYSE: F mentioned during it currently has 45,000 vehicles piled up due to supply chain issues. Supply chains will slowly start to normalize as shipping backlogs reduce, and China opens up during the next couple of quarters. Meanwhile, global freight costs have fallen significantly as well, and that should help reduce some of the operational costs for the next quarter.

Tesla currently trades at a valuation of 68x earnings, significantly down from recent times, where its P/E was hovering over 100x. Tesla’s growth is increasingly bringing its valuation, and this could lead to the stock heading higher. Tesla’s technicals show a slightly bullish sentiment, with the put-to-call ratio currently standing at 0.9 and the long-term RSI, also showing bullish momentum.

Tesla’s unique market positioning, improving cash flow, and margins all bode well for the stock, and while risks to the car market remain, similar to Apple NASDAQ: AAPL, Tesla is not very sensitive to macroeconomic headwinds and should continue to head in the right as we move into the next year unless the global economy sees a significant recession.