The third quarter is almost over and
Tesla
‘s quarterly delivery report is about two weeks away. That means it’s time for Wall Street analysts to sharpen their pencils and adjust numbers.
The direction of their delivery estimates is going to be down.
Falling estimates aren’t what investors want to see, but there is a silver lining.
When it comes to
Tesla
(ticker: TSLA), Wall Street typically starts a quarter out feeling optimistic. In six of the past eight quarters, analysts’ initial vehicle delivery estimates have been higher than their final estimates. The final number typically ends at about 98% of the initial number.
Third-quarter numbers illustrate the typical pattern. Tesla delivered a record 466,140 in the second quarter. Following that result, Wall Street set the third quarter delivery number at about 473,000 units. Now the number is down to 468,000. It will probably finish under 463,000.
Tesla management told investors on the second-quarter earnings conference call that planned plant downtime would limit sequential delivery growth between Q2 and Q3.
Why the cuts? It’s difficult to say. It’s possible that as a quarter wears on analysts start to worry about demand or production or both. It’s possible that they want to set a lower bar that’s easier to beat. Wall Street prefers conservatism. Don’t forget, roughly 70% of companies reporting quarterly numbers exceed Wall Street estimates.
Falling estimates can put pressure on a stock. Tesla stock fell 3.3% Monday while the
Nasdaq Composite
was flat after Goldman Sachs analyst Mark Delaney cut his 2023 earnings estimate to $2.90 this year from $3.00.
His number includes stock-based compensation. When reporting earnings, many companies, including Tesla, remove stock-based compensation and report adjusted earnings figures. For Tesla, Wall Street expects adjusted 2023 earnings per share of about $3.35. The unadjusted figure is close to Delaney’s $2.90 a share.
Monday trading is an example of what can happen when estimates come down. That makes the prospect of falling delivery numbers scary, but investors don’t have to worry all that much about falling delivery estimates though. There is little rhyme or reason for how Tesla stock reacts to changing delivery figures.
Delivery numbers much better than initial or revised estimates, of course, are good for Tesla stock. Shares rose 13.5% in January 2022 after the company reported fourth-quarter 2021 deliveries of about 309,000 units. Wall Street started out projecting 261,000 units for the quarter and settled on 268,000 units just before the report. Much worse than expected is bad. Tesla stock dropped 12.2% in January 2023 after the company reported fourth-quarter 2022 deliveries of about 405,000 units. Wall Street started out projecting 440,000 units and settled on 427,000 units.
Excluding extreme cases, predicting reactions is very difficult. Tesla stock has risen or fallen after delivery beats and misses. How estimates changed coming into the delivery report isn’t much help. Stock reactions depend on many factors, including how Tesla stock is doing heading into a delivery report.
This time around, Tesla stock is down about 5% since it reported second-quarter delivery figures. The
S&P 500
is flat over the same span.
The setup for Tesla stock will change between now and Oct. 2, when the delivery report is due. Between now and then all investors can do is gather context and prepare.
Write to Al Root at [email protected]
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