Tesla (NASDAQ:TSLA) is gearing up to unveil its fourth-quarter 2023 results on January 24 after market close, with a focus on its vehicle deliveries and profit margins. Although the company achieved record deliveries in the fourth quarter, outperforming model estimates, concerns loom over shrinking profit margins.

Despite TSLA surpassing earnings estimates in three of the last four quarters, averaging a 3.22% surprise, the upcoming results may face headwinds. Before delving into the factors shaping the upcoming report, let’s review Tesla’s third-quarter 2023 highlights.

Q3 Overview

Tesla encountered a deviation from its 10-quarter winning streak in the third quarter of 2023. Earnings per share came in at 66 cents, down from $1.05 YoY and below the Zacks Consensus Estimate of 72 cents. Total revenues reached $23,350 million, reflecting 9% YoY growth but falling short of the consensus mark of $24,381 million.

The company produced 430,488 units in Q3, surpassing our estimate of 415,645 units. Deliveries amounted to 435,059 vehicles, marking a 27% YoY increase and exceeding our estimate of 428,141 units. Notably, the Model 3/Y contributed significantly to deliveries, registering a 29% YoY growth with 419,074 vehicles. However, deliveries of the Model S/X totaled 13,688 units, down 31% YoY.

Looking ahead to Q4, while record deliveries of 484,507 units are anticipated, a closer inspection reveals potential challenges. The Model 3 and Model Y are expected to drive most sales, with 461,538 deliveries, surpassing our forecast. The surge in Q4 deliveries can be attributed to robust sales of the Model 3 in the United States, driven by the conclusion of federal tax credits, which incentivized consumers to expedite their purchases.

Despite the delivery surge, concerns arise due to substantial discounts in various regions, including the United States and China, potentially impacting gross margins. The rising costs of raw materials and logistical challenges are expected to exert downward pressure on overall results. Automotive sales costs are projected to increase by over 16% to approximately $18 billion, leading to an anticipated 25.6% YoY decline in gross profit from automotive sales.

The automotive gross margin (excluding leasing) is expected to stand at 17.9%, significantly lower than the 25.5% recorded in the year-ago period and the 18.2% in Q3 2023.

In summary, while Tesla’s Q4 results are likely to showcase impressive delivery growth, concerns regarding shrinking profit margins, driven by discounts and cost challenges, may impact the overall financial performance.

Featured Image: Unsplash Tesla  © Fans Schweiz 

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