Tesla’s (NASDAQ:TSLA) incredible track record of surpassing earnings expectations for ten consecutive quarters came to an abrupt halt with the release of its third-quarter 2023 financial report, causing Tesla stock price to drop.
During this quarter, the electric vehicle behemoth reported earnings per share of 66 cents, which marked a noticeable decrease from the prior year’s figure of $1.05. What’s more, it fell short of the consensus estimate of 72 cents. The main cause for this downturn was Tesla’s decision to reduce prices on its existing vehicle inventory, a move that had an adverse impact on its profit margins. Notwithstanding this challenging backdrop, total revenues did display a year-over-year increase of 9%, reaching a substantial $23,350 million. Regrettably, this figure was still below the consensus estimate of $24,381 million. The repercussions of this financial underperformance reverberated through the stock market, causing a swift and significant decline in Tesla stock price by over 4% in after-hours trading.
In terms of operational performance, Tesla’s operating margins for the quarter stood at a modest 7.6%, representing a significant decline of 964 basis points when compared to the prior year. This margin also failed to meet the estimated 7.9%. The erosion of margins was primarily attributed to the formidable expenses associated with the expansion of production for new battery cells, the much-anticipated Cybertruck, and several other substantial projects. Additionally, reduced average selling prices and foreign exchange challenges weighed heavily on the overall margins.
In its pursuit of stimulating vehicle deliveries and enhancing affordability in the United States, Tesla initiated a series of discounts and incentives. Notably, all trims of the Model 3/Y were made eligible for the full $7,500 federal tax credit, thanks to the Inflation Reduction Act. Despite these efforts, Tesla’s share of the U.S. electric vehicle market experienced a drop, declining from 60% in the first quarter to 50% in the third quarter, according to data provided by Kelley Blue Book.
Despite the formidable challenges, Tesla’s management remained steadfast in its commitment to achieving around 50% growth in deliveries in the foreseeable future, with an ambitious target of delivering 1.8 million units in 2023.
The third quarter of 2023 saw Tesla’s production reach an impressive 430,488 units, surpassing expectations by a considerable margin and demonstrating a noteworthy 18% year-over-year increase. The company’s actual deliveries for the quarter reached a robust 435,059 vehicles, showcasing a remarkable year-over-year growth of 27% and comfortably exceeding estimates.
Breaking down the numbers, the Model 3/Y experienced a striking 29% year-over-year growth in deliveries, comfortably surpassing projections. Conversely, deliveries of the Model S/X faced a more challenging environment, with a decline of 31% from the previous year’s figures, which also fell short of our estimates.
Total automotive revenues painted a relatively brighter picture, reaching $19,625 million, a figure that exceeded initial estimates. Notably, this figure included $554 million in revenue generated from the sale of regulatory credits for electric vehicles, marking a substantial 93.7% increase when compared to the previous year. Automotive gross profit came in at an impressive $3,668 million, with a margin of 18.6%, reflecting an area where Tesla still retains a competitive edge.
Shifting focus to the Energy Generation and Storage sector, the third quarter of 2023 showed that revenues had climbed to $1,599 million, reflecting a significant increase when compared to the same quarter in the previous year, which stood at $1,117 million. This achievement was underpinned by a remarkable 90% year-over-year growth in energy storage deployments. The positive trajectory was largely attributed to the successful ramp-up of the Megapack factory in California. However, the solar deployments faced a dual challenge, declining both on a sequential and yearly basis, primarily due to the impact of high interest rates and the termination of net metering in California. In summary, solar deployments came in at 49 MW, which fell short of our forecast of 103.8 MW.
Turning the spotlight to Services and Other revenues, the third quarter results were promising, with revenues reaching $2,166 million, representing a substantial year-over-year growth of 31.6%. Notably, this growth was primarily driven by key components like Supercharging, insurance, and body shop and part sales.
In terms of financials, Tesla’s balance sheet displayed significant growth, with cash and cash equivalents amounting to an impressive $26,077 million as of September 30, 2023. This was a substantial increase from the $22,185 million reported at the end of 2022. Additionally, Tesla generated a free cash flow (FCF) of $848 million during the quarter, although this marked a decline from the $3,297 million generated during the same period in the previous year. Long-term debt and finance leases, net of the current portion, totaled $2,426 million, reflecting an increase from $1,597 million at the end of December 2022.
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