Tesla Faces Declining Delivery Estimates for Q3

The third quarter is nearing its end, and Tesla's quarterly delivery report is just around the corner. This means that Wall Street analysts are now preparing to adjust their numbers, and unfortunately, the direction of their delivery estimates seems to be downwards.

While falling estimates may not be what investors hope for, there is a silver lining to this situation. When it comes to Tesla (TSLA), it is a recurring pattern for Wall Street analysts to start a quarter feeling optimistic, only for their initial vehicle delivery estimates to eventually come down. In fact, in six out of the past eight quarters, analysts' final estimates have ended up at around 98% of their initial projections.

The third quarter of this year follows the same pattern. After Tesla's impressive delivery record of 466,140 units in the second quarter, Wall Street initially set the delivery number for Q3 at about 473,000 units. However, as the quarter progressed, this estimate has now decreased to 468,000 units and is expected to fall even further, potentially ending below 463,000 units.

During the second-quarter earnings conference call, Tesla management informed investors that planned plant downtime would limit growth in deliveries between Q2 and Q3. It is difficult to pinpoint the exact reasons behind these downward revisions in estimates. It's possible that as the quarter goes on, analysts start to worry about demand or production or even both. Alternatively, they may intentionally set a lower bar to achieve a more easily beatable target, as Wall Street generally prefers conservatism. Notably, around 70% of companies reporting quarterly numbers tend to exceed Wall Street's estimates.

Falling estimates can put pressure on a stock, and we have witnessed this with Tesla. On Monday, Tesla stock fell by 3.3% while the Nasdaq Composite remained flat after Goldman Sachs analyst Mark Delaney reduced his 2023 earnings estimate to $2.90 from the previous $3.00.

Despite these challenges, Tesla continues to be a widely anticipated company in the automotive industry. The forthcoming quarterly delivery report will offer valuable insights into the company's performance and its ability to navigate through hindrances.

Tesla's Earnings Report and Stock Performance

Tesla, like many other companies, adjusts its earnings figures by removing stock-based compensation when reporting its earnings. For the year 2023, Wall Street expects Tesla's adjusted earnings per share to be around $3.35, while the unadjusted figure stands at $2.90 per share.

Monday's trading served as a reminder of the unpredictable nature of estimates. While falling delivery numbers might create some concern among investors, the reaction of Tesla's stock to such changes is often inconsistent. There doesn't seem to be a clear pattern for how the stock responds to fluctuations in delivery figures.

Of course, significantly better than expected delivery numbers have a positive impact on Tesla's stock. This was evident in January 2022 when the company reported fourth-quarter 2021 deliveries of approximately 309,000 units, surpassing initial projections of 261,000 units. As a result, Tesla's stock rose by 13.5% in that month. Conversely, disappointing delivery numbers can have a detrimental effect. In January 2023, Tesla's stock dropped by 12.2% following the announcement of fourth-quarter 2022 deliveries totaling about 405,000 units, falling short of the initial projection of 440,000 units.

Predicting how Tesla's stock will respond to delivery beats or misses is challenging, barring extreme cases. The stock has seen both rises and falls after such reports, and the changes in estimates leading up to the deliveries offer little guidance. Various factors come into play when determining the stock's reaction, including its performance leading up to the delivery report.

As we approach Tesla's next delivery report on October 2, 2023, it is important to note that the stock has declined by approximately 5% since the company announced its second-quarter delivery figures. In comparison, the S&P 500 has remained relatively flat during the same period.

It is crucial for investors to gather context and prepare as the setup for Tesla's stock could change leading up to the delivery report.