Tesla investors focus on demand issues in earnings report

Oct 18 (Reuters) – Tesla Inc () The quarterly report on Wednesday is likely to show whether the electric car maker led by Elon Musk faces any weak demand starting to weigh on the broader auto industry.

Decades-old high inflation, rising energy bills in Europe, and signs of a weak China market have raised doubts among some analysts about whether Tesla can weather the economic slowdown and continue to raise prices without hurting its sales.

Although Musk said Tesla “has no problem with demand,” the company’s latest report on deliveries showed it made 22,000 more electric vehicles than it delivered to customers in the third quarter. It blamed the increase in inventory on transportation-related problems.

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Context

Demand for Tesla cars in China, the world’s largest auto market, is emerging as a major concern among Wall Street analysts, given that the electric vehicle maker faces stiff competition from domestic rivals BYD (<002594.SZ>and Nio Inc.<9866.HK>) and XPeng Inc.<9868.HK>).

“The biggest concern right now is demand in China where waiting times appear to be shrinking,” RBC Capital Markets said. “The question is whether this is a traffic light or signs of a larger change among consumers.”

Globally, there are concerns that auto sales could lose steam in the coming quarters as higher interest rates and a weak economic background discourage consumers from buying big tickets. Read more

Analysts say pricing is a key factor that could help Tesla offset a potential drop in demand and boost revenue. Read more

Reuters graphics

The average US selling price of a Tesla Model 3 is up about 24% since January last year, which could help the electric car maker achieve record revenue in the third quarter.

Wells Fargo said Tesla is likely the biggest beneficiary of the Biden administration’s new tax breaks to spur production of batteries and electric vehicles in North America.

Musk also raised hopes of a stock buyback earlier this month when he said “Noted” on Twitter in response to a large individual investor’s call for a stock buyback.

Such a move could benefit Musk, whose 15% stake in Tesla makes him its largest shareholder, and help him raise money to fund his $44 billion acquisition of Twitter Inc.) Special.

Some experts say Musk may need to sell up to an additional $3 billion in shares after the earnings announcement to help fund the deal.

“If there is a big sell-off of Tesla stock by Musk after earnings, it would be a strong sign that the Twitter deal is about to close,” said Adam Badawi, a law professor at the University of California, Berkeley.

The basics

* Analysts expect Tesla’s third-quarter revenue to rise 60% to $21.96 billion and earn $1 per share when it reports results on Oct. 19 – Refinitiv data

Wall Street Morale

* Of the 43 analysts covering the company, 27 have rated the stock “buy” or higher, 10 have a “hold” rating and six have a “sell” or lower rating.

*Average target price is $325, up 14% since the start of 2022

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Additional reporting by Akash Sriram in Bengaluru and Hyungu Jin in San Francisco; Editing by Anil de Silva

Our Standards: Thomson Reuters Trust Principles.

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