Tesla Earnings: Did Elon Musk shoot himself in the foot?

Lots of chatter after Tesla’s earnings report. Investors are getting worried about Tesla after the release of their third-quarter financial results.

But it was a record quarter, right? $21B in sales, with net income doubling to $3.3B. For most companies, this would have been impressive. But not for Tesla…

There are extremely high expectations of Tesla for two reasons:

1. Valuations: Tesla is no ordinary stock. It’s over 10x more expensive (based on valuation metrics and market cap) than other carmakers like Ford and GM.
2. Musk himself: Despite production issues in the first half of 2022, Musk said they would still hit their full-year 50% growth target.

The results were strong (but failed to meet estimates). It’s always about expectations. With such a high valuation, investors expect lots of growth. Investors will be quick to move on if they fail to meet that growth.

A lot is riding on Tesla meeting demand next quarter. For years, Tesla had a massive backlog. How’s demand holding now? 

When Musk was asked about demand, here’s what he said:

• “I can’t emphasize enough, we have excellent demand for Q4, and we expect to sell every car that we make for as far into future as we can see.”
• “Of the 2 billion cars and trucks on the road, we only have about 3.5 million. So, we’ve got a long way to go to even reach 1% of the global fleet.”
• “We are extremely confident of the great Q4, and we anticipate continuing to grow our vehicle production, sales deliveries by on average 50% a year as far into the future as we can see.”

But data from other auto companies paint a different picture: Auto loans have fallen significantly and auto sales in China (one of Tesla’s largest markets) is slowing rapidly.

There’s a lot riding on Tesla meeting demand next quarter.

The Average Joe: “At these prices and market condition, there’s low upside potential and high downside risk.”