Tesla Q3 earnings preview - what traders' need to know

Tesla Q3 earnings preview

Date – After market close on 20 October 2021

Trade Tesla all sessions on MT4 & MT5 with Pepperstone.

Volatility and movement

• The implied move on the day of earnings (derived from option pricing) is 5.8%. Tesla has fallen on each of the last three quarterly earnings reports by an average of 3.3%
• Going into earnings, Tesla’s 10-day realised volatility is 15.6% - the lowest since February 2018
• The market has reduced short positions into earnings, with $26.82m of short interest – this is just over 3% of free float and one of the lowest levels of short positioning since listing.

Analysts review

47 analysts cover Tesla – 22 have a buy rating, 12 a hold and 13 a sell. The consensus 12-month price target is $660, with the calls ranging from $1200 to $67.

Earnings considerations

• Tesla have beaten consensus earnings-per-share (EPS) expectations in 7 of the past 8 quarters
• Tesla have beaten consensus sales expectations in 6 of the past 8 quarters
• For Q3, analysts expect:
  • Q3 EPS - $1.56
  • Revenue - $13.52b
  • Free cash flow - $1.05b
  • Return on equity – 38.9%
  • Gross margins – 23.89%

Looking ahead, how do the quarterly numbers and guidance feed into consensus expectations for:

• 2021 full-year EPS of $5.35 (+138% YoY), 2022 EPS of $7.31
• 2021 revenue of $50.6b (60.45%), 2022 sales of $69.16b
• 2021 gross margins (GM) 23.44%, 2022 GM 23.97%

What to watch

The market recently discounted its Q321 preliminary delivery numbers of 241k (+20% QoQ), which were a solid beat vs expectations. It seems the company is executing efficiently and that perhaps the market had overestimated their concerns of semiconductor constraints. While we’ve seen some boost to earnings expectations from the delivery numbers, further clarity on this point may be a catalyst for the share price in the earnings call.

Costs pressures, will also be in focus, as will be the case across S&P 500 companies in Q3 earnings calls and any guidance from Tesla that feeds into full-year gross margin expectations could influence shares. Narrative around how the new factories in Berlin and Texas are progressing could also inspire, as would detail on its plans for internal battery capacity.

Technical set-up

(Source: Tradingview - Past performance is not indicative of future performance)

Tesla will always be at the mercy of broad market sentiment and with a beta to the S&P 500 of 1.62, if the index rolls over then you’ll likely see Tesla having a far more aggressive move (and vice versa). Working within a bullish channel, the market is long of Tesla into earnings and a closing break of $800 should see $825 come into play, possibly even targeting the January highs of $900.

A close below channel support and the 50-day MA, challenges the bullish trend and should throw up far more compelling shorting opportunities.