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Tesla share price: what to expect from third-quarter results

Tesla delivered more electric cars than ever before in the third quarter, but will it translate to higher earnings? We have a look at what to expect from its results.

  • Tesla delivered more cars in the third quarter than ever before, which is expected to drive improvements in revenue and profitability when it releases earnings this week.
  • Focus is on whether Tesla can achieve its target to sell 500,000 cars in 2020 as a whole, which is a huge but achievable task for the company.
  • Growth in sales is key as Tesla prepares to bring on more capacity in the US, Europe and China by early 2021.
  • Tesla shares have increased more than five-fold since the start of the year, comfortably making it the best performer on the NASDAQ and outshining traditional automakers that have struggled to cope with the pandemic.

When are Tesla’s third-quarter results?

Tesla is scheduled to release its third quarter (Q3) on Wednesday 21 October. These will cover the three months to the end of September.

The results will be released after the market close, but you can still trade the results as they happen, even out of hours, as Tesla is an All Sessions stock.

Tesla Q3 earnings preview: what to expect

Tesla has already set the stage for its earnings after revealing it produced and delivered more cars than ever before during Q3. It delivered over 139,000 cars in the quarter – 53% more than Q2 – mostly driven by demand for the Model 3 and the new Model Y.

Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020
Total production 96,155 104,891 102,672 82,272 145,036
Total deliveries 97,186 112,095 88,496 90,981 139,300

Source: Tesla

That acceleration in deliveries is impressive considering the tumultuous economic picture caused by the coronavirus pandemic, which has severely hampered demand for petrol-guzzling vehicles from traditional carmakers. Practically every major automaker, including Mercedes, Toyota, BMW, Ford, Nissan, Renault and PSA, saw at least a 20% decline in deliveries during the first half of 2020.

The record has installed confidence that Tesla can deliver an improved financial performance and pushes the focus on to how this translates into earnings this week.

Can Tesla deliver 500,000 vehicles this year?

Tesla is aiming to sell 500,000 vehicles this year – 27% more than the 393,037 delivered in 2019. That goal looked highly unlikely earlier this year, but Tesla has remained adamant that it can reach the milestone, even if it has admitted that it has ‘become more difficult’ in light of the pandemic.

Growth in quarterly production and sales has accelerated this year and Tesla has delivered 318,777 cars in total during the first three quarters of 2020. That means it would need to sell at least 181,223 cars in the final three months of the year if it is to achieve its annual target.

Tesla does have the capacity to hit that goal, but it would mean the company needs to deliver another huge 30% lift in sales in Q4. There are reasons to be bullish considering the 53% quarterly increase in sales during Q3. If Tesla was to achieve those 500,000 sales, deliveries would have to more than double in just six months, demonstrating the speed at which Tesla is moving.

Tesla sales grow as new capacity comes online

The trajectory of sales is crucial, and investors will want to see this growth accelerate as it heads into 2021, when Tesla will bring on further capacity that investors will want utilised as quickly as possible. Tesla will be building three factories – in the US, Germany and China – simultaneously by the end of this year. The company currently has enough capacity to produce 490,000 cars per year in the US and that will increase to 590,000 by the end of the year. It can also produce 200,000 Model 3s in its new Chinese factory and the first Chinese-produced Model Ys will begin to roll off the production line in 2021. The third site will be based in Berlin, where it will produce both the Model 3 and Model Y, to establish a base in the heartland of Europe’s automotive industry.

China is particularly under the spotlight at present as the country is already proving a crucial market for Tesla. China is home to nearly half of the world’s electric cars and accounts for the biggest slice of global sales by far. Tesla’s Model 3 has already become the most popular electric car in the country, fending off fierce competition from a slew of domestic and foreign rivals, and some analysts believe it could account for over 40% of Tesla’s overall sales by early 2022.

One key aspect of producing in China is that it severely cuts costs and avoids being hit by import taxes, making them much more competitive against cheaper Chinese competitors. The same will be true in Germany, which should make Tesla cars more affordable for the European market compared to shipping them from the US. It has further plans to build more capacity in the US to bolster output of the Model Y and to accommodate new models, like the Cybertruck, Tesla Semi and Roadster.

Read more: Why has Chinese electric carmaker NIO hit new all-time highs?

All-in-all, the increase in capacity and localisation of production should drive improved profitability by providing scale and driving down costs. This should drive better margins for Tesla as new factories come online next year.

Tesla Q3 earnings: what does the City expect?

The ramp-up in deliveries is expected to push revenue up to over $8.2 billion in Q3 – 31% higher year-on-year and 37% above the previous quarter. Importantly, margins and earnings are both expected to improve and its bottom-line is anticipated to hit $364.5 million compared to $143 million a year earlier and $104 million in Q2.

Tesla Q3 earnings consensus

Below is an earnings consensus for Tesla’s Q3 results compiled by Reuters.

Q3 2019 Q4 2019 Q1 2019 Q2 2020 Q2 2020
Revenue 6,303 7,384 5,985 6,036 8,288
Gross margin 18.90% 18.84% 20.62% 10.92% 20.11%
Gross profit 1,191 1,391 1,234 659 1,667
Adjusted ebitda 1,189 1,175 951 1,209 1,486
Net profit/loss 143 103 16 104 364.5

How to trade Tesla’s Q3 results

Tesla has seemed immune from the coronavirus pandemic that has severely hit the majority of stocks. Tesla shares have jumped by over 400% since the start of 2020 and hit an all-time high of over $498 on the last day of August.

Expectations are high ahead of the Q3 results and it will undoubtedly be a trigger moment for Tesla shares. You can speculate as to whether you think Tesla shares will rise and buy (go long) or, if you think they will fall, sell (go short) using either CFDs or spread bets. Just follow these five easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘Tesla’ or its ticker, ‘TSLA.O’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

If you want to try your trading strategy risk-free then why not try an IG demo account? Plus, you can look to invest in Tesla shares using an IG share dealing account, whereby you can buy the shares outright and benefit from any dividends that are paid.

Learn of all the ways to trade with IG

Tesla shares: broker recommendations

Brokers have a mixed view on Tesla shares. Although some remain bullish on the stock the stellar rise in shares means some believe its valuation has been overstretched. Overall, the 33 brokers that cover Tesla have an average rating of Hold and target price of $313.52 – some 40% lower than the current share price.

Number of Brokers
Strong buy 6
Buy 3
Hold 14
Sell 5
Strong sell 4
Average rating Hold
Average target price $313.52

Where next for Tesla shares?

Tesla has consistently improved this year when the majority of stocks, let alone the automotive industry, has suffered as a result of the pandemic. Still, with shares now worth five times more than the start of the year, there is a risk that the rally has stretched Tesla’s valuation.

This limits the potential upside to shares going forward. If Tesla underperforms in Q3 or provides a disappointing outlook for Q4 (like missing its 500,000 delivery target) then it will undoubtedly be punished by the market that has bought into its growth this year, but the rally could gain further ground if profitability improves better than expected and its annual target remains intact. Tesla will have to deliver another remarkable rise in sales in the final months of 2020 to please shareholders, but it has already proved it can deliver significant growth.

Maintaining momentum in sales is key as Tesla prepares to bring significant new capacity online by early 2021. If it can utilise it effectively then the new factories should drive down costs by providing scale and localised production.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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