Tesla Inc. faces increasing scrutiny due to its shrinking profit and shares that are underperforming. It is now an outlier in the mega-cap tech industry.
Bloomberg reported that investors were particularly worried ahead of Tesla’s earnings report for the third quarter, as it could cement Tesla’s position as the weakest member in the “Magnificent 7.”
Tesla will report its earnings after the markets close today.
Profits and estimations are declining, lowering confidence.
Tesla will be the only one of the Magnificent Seven to report a drop in profit for the last quarter. The other six — Amazon, Microsoft Apple, Alphabet Meta and Nvidia — all expect to see profits grow.
Wall Street analysts continue to lower their earnings estimates for Tesla, highlighting further the struggles of the company.
Tesla stock is down 12% in comparison to its technology counterparts.
Tesla is the most expensive stock in the group, based on its earnings. It trades at 74x forward earnings.
The company will have to work hard to convince investors of its future results.
If Tesla’s much-anticipated Robotaxi had been revealed earlier in the month, it could have made a bigger impact on Wednesday’s third-quarter results.
The event did not meet investors’ expectations and left them worried about Tesla’s ability to keep its innovative edge.
David Wagner, Aptus’ portfolio manager, said that investors are losing patience with Tesla. This is especially true after their robotaxi event, which was a great idea but lacked execution. Growth expectations for the core business of Tesla remain low in the coming two years.
Tesla continues to be weighed down by a slowdown in EV sales
Tesla faces a number of challenges, including the decline in demand for electric vehicles (EVs), which began around 2023.
Consumers have cut back on big purchases, such as cars and EVs, due to inflation, increasing borrowing costs, concerns over an economic slowdown, etc.
Tesla’s aggressive price cuts to lure buyers have not fully revived demand.
The third-quarter revenue is expected to reach $25.4 billion, an increase of 8.9% over the previous year.
Analysts expect the earnings per share to drop by 10%. They predict that 60 cents will be earned per share, compared with 67 cents a share in the last quarter, and $1.09 per share from a year earlier.
Tesla’s auto gross margin is also expected to continue being under pressure. Estimates for the third-quarter are 14.9%, which is just a little bit higher than the 14.6% recorded in the previous quarter.
Cole Wilcox is the portfolio manager of Longboard Asset Management. He said in the report that the most significant factor in the stock’s short-term performance will be if the demand trend exceeds or falls below the expectations, and the gross margins go above or under.
He said that although Tesla is still strong in the EV sector compared with competitors, the “EV Demand” category has not grown as explosively.
Tesla prospects cautiously viewed by analysts
Analysts have cautioned that, as Tesla faces these challenges and struggles to overcome them, a solid recovery of the stock may be difficult without gaining more insight into its longer-term prospects for growth.
Alexander Potter, Piper Sandler’s analyst believes the catalysts to a bullish rating of Tesla stock will not be evident until next year. Tesla is likely to launch new products in China and possibly receive regulatory approval for their advanced driver assistance technology.
Potter, in an email to clients wrote: “Despite the third-quarter results, we believe a sustainably positive re-rating is unlikely until investors are given reasons to raise estimates.”
Many investors, despite these worries, believe that Tesla will remain among the Magnificent 7 due to the company’s reputation as a leader in innovation and the potential it has to transform the automotive industry through self-driving cars.
Tesla’s recent earnings report may be critical in determining how investors view Tesla’s role as a tech leader in the future.
Adam Sarhan is the founder and CEO at 50 Park Investments. He said: “Tesla’s earnings in 2019 are important, but part of a bigger picture.”
Tesla is still a contender for Mag 7 but it will be a while before the Mag 7 can dismiss Tesla.
Tesla must impress investors and maintain its competitive position on the tech market.
This article Why Tesla’s Earnings Could Increase Pressure to Justify Its Place in The Magnificent Seven first appeared on The ICD
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