Tesla (NASDAQ:TSLA) is gearing up to release its third-quarter 2023 financial results tomorrow, after the markets close. The focal point of the electric vehicle (EV) manufacturer’s earnings release will be its vehicle production and deliveries. Despite beating estimates in third-quarter deliveries, there was a sequential decline.
Notably, Tesla has consistently exceeded earnings estimates in the past ten quarters. The question now is whether it can maintain this trend. Before we delve into the factors influencing the upcoming results, let’s review Tesla’s second-quarter 2023 earnings report.
Q2 Highlights
In the second quarter of 2023, Tesla reported earnings of 91 cents per share, surpassing the year-ago figure of 76 cents and outpacing the Zacks Consensus Estimate of 83 cents. This marked the 10th consecutive earnings beat for the company. The outstanding performance was attributed to record deliveries and revenues, which exceeded expectations. Total revenues amounted to $24,927 million, reflecting a 47% year-over-year increase. The top line surpassed the consensus estimate of $24,884 million.
Tesla’s second-quarter production reached 479,700 units, comprising 460,211 Model 3/Y units and 19,489 Model S/X units, showing an 86% year-over-year increase and outperforming our estimate of 452,602 units. Deliveries also exceeded our projections due to stronger-than-expected demand, despite higher interest rates. Tesla’s strategy of offering discounts and incentives in the United States to enhance affordability translated into robust deliveries. Additionally, all trims of the Model 3/Y vehicles qualified for the full $7,500 federal tax credit under the Inflation Reduction Act in the United States during the second quarter, further bolstering sales. The company delivered 466,140 vehicles, marking an 83% year-over-year increase and surpassing our estimate of 434,736 units.
Tesla’s balance sheet as of June 30, 2022, showed cash/cash equivalents of $23,075 million and long-term debt and finance leases of $872 million. The company generated free cash flow of $1,005 million in the second quarter of 2023, representing a 62% year-over-year surge.
Q3 Deliveries Rise Year-over-Year but Fall Sequentially
After achieving record deliveries in the first two quarters of 2023, Tesla faced a sequential decline in its third-quarter deliveries. The company delivered a total of 435,059 vehicles worldwide in the third quarter, surpassing our model estimate of 428,141 and reflecting a 26.5% increase compared to the previous year. However, these deliveries marked a 6.6% sequential decrease from the 446,140 vehicles delivered in the second quarter of 2023, primarily due to planned factory shutdowns for an upgrade.
Tesla’s models 3 and Y are the company’s most successful EVs, accounting for a significant portion of its sales. In the third quarter, Tesla delivered 419,074 of these models, surpassing our forecast of 411,075 units. Third-quarter 2023 deliveries of models S and X reached 15,985 units, falling short of our estimate of 17,066 units.
Regarding production, Tesla manufactured 430,488 vehicles during the third quarter, comprising 416,800 Model 3/Y units and 13,688 Model S/X units, reflecting a 17.6% increase year-over-year but a decrease from the 479,700 units produced in the second quarter of 2023. Nevertheless, this production figure exceeded our projection of 415,645 units.
Challenges Ahead for Auto Margins
Expectations for total automotive revenues in the third quarter are approximately $21,092 million, representing a 12.8% year-over-year increase but a decline from $21,268 million in the second quarter of 2023. Additionally, Tesla reduced prices on its inventory vehicles and existing models throughout the third quarter, which is anticipated to have put pressure on its gross margins. Projections indicate a 26.4% year-over-year decline and a 6.5% sequential drop in gross profit from the automotive segment.
The estimated third-quarter automotive gross margin for TSLA stands at 18.2%, implying a 1 percentage point decrease from the second quarter of 2023 and a substantial 9.7 percentage point drop compared to the prior year.
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