As many of you know, Tesla is releasing their Q3 earnings report this Wednesday (October 20th) after market close. Over the past 12 quarters of earnings releases Tesla has traded down 80% of the time with an average loss in the next trading session of 2.7%, and the other 20% of the time, Tesla traded up after earnings, with an average increase of 0.9%. So historically they have performed relatively poor when it comes to earnings, however, I am setting out to find if this earnings report will beat the odds and launch Tesla’s stock close to their previous high of $900/share.
TSLA stock as it is up 50% over the past 5 months (averaging a monthly return of 8.4% during this timeframe). Additionally, the TSLA stock is up 7% over the past 5 trading days, which is a large return during this small timeframe. As a result of their performances over the past 5 months (and 5 days), there are currently a lot of eyes on the TSLA stock, and there is a lot of hype around their upcoming earnings report. However, since it has been hyped up over the past week it might take a large earnings beat to push the stock higher than it is trading for today.
I think that it is very important to understand Tesla’s performance in their previous earnings report, and the reaction that ensued the next trading day. Furthermore, I think it is important to see the points that they highlighted as key contributors to their earnings, and the factors that may have hurt their earnings.
TSLA beat earnings in Q2 2021 by a wide margin, reporting an EPS of $1.45 compared to the estimated $0.98, and reporting revenues of $11.96B in comparison to their estimated revenues of $11.3B. There were also other factors in these earnings that are important, however these 2 key metrics lead to the earnings beat, which resulted in TSLA opening 0.9% higher the next trading day, and closing down 2% at the conclusion of the next trading day. This is important to note as even when TSLA has a great earnings report, they can still trad lower the following day, which will be important for investors to know come the October 21st trading day.
Important things to note:
Cost of Revenue: In their earnings report, Tesla noted a few factors that contributed to their increase in their cost of revenues. Firstly, and most obviously, they had more deliveries, which made their cost of revenue figures increase. Secondly, they noted that higher outbound freight/duties from China (Gigafactory) increased their cost of revenues. Lastly, they noted that the cost of materials, manufacturing, inbound freight helped to offset (decrease) the effects of higher Chinese freight costs.
Revenue from Regulatory Credits:
Tesla earns their regulatory credits by the amount of EV’s they sell. These credits are also weighed based on the range of the vehicles that they sell. Based off of my calculations, (which can be found at the bottom of this article) I believe that Tesla will make $424.5M off of the sale of regulatory credits.
On October 2nd, 2021, Tesla released their production and delivery figures for Q3. I can use these figures to estimate their automotive revenues for Q3 2021. Based off of these figures and the average price per car, I estimate that Tesla’s revenues will be $11.71B for Q3 2021.
Automotive Leasing Revenues:
By my calculations, using the past 2 quarterly earnings reports, in conjunction with their quarterly vehicle deliveries, I found that based off of the Q3 deliveries, Tesla’s leasing revenues should be $356M.
Energy generation and Storage Revenues:
I did not have much to base this off of, so I held it constant. I did this because if I am wrong, I should be understating these revenues, which is a more conservative estimate.
Based off of their historical growth in this sector, I projected these revenues to be $1.01B.
I think that Tesla’s total revenues for Q3 2021 will be $14.3B, which would represent earnings beat. This is due to the fact that the average analyst estimate for their revenues is at $13.5B. If my prediction comes true, Tesla will beat their revenue estimates by nearly 6%. This represents very similar earnings beat percentage as achieve in their Q2 earnings report.
Cost of Revenues:
I think that the automotive cost of revenues will increase by 20%. This is due to the fact that aluminums prices are up by 27% since Q2 earnings, steel prices are up 15% since last earnings (price to manufacture cars up 20%), and that freight prices haven’t changed QoQ. Additionally, Tesla manufactured 20% more cars since last earnings (additional 20% cost of revenue due to higher volume). This would bring the automotive cost of sales to $8.54B.
Furthermore, I took all of the other cost of revenue items and calculated them based off of historical % of revenues (respectively). By doing this I concluded that all other costs of revenue would total $2.02B. Which would conclude the total cost of revenues for Q3 to be $10.56B
Based off of my calculations, Tesla’s gross profits should be $3.747B
Net Income Attributable to Shareholders:
Based off of historical percentages of net income to net income attributable to shareholders, I can conclude that Net Income Available to Shareholders for Q3 2021 should be $1.48B
Since there are 990M shares outstanding, Tesla’s EPS should be $1.50 which would represent Tesla meeting their Q3 earnings estimates.
Based off of my calculations, Tesla should narrowly beat their earnings. This should be good for the stock; however, we have seen what has happened to Tesla in previous earnings beats.
I think that Tesla will open the following trading day up between 0.5-1% and fall to even or even -0.5% by the close.