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Tesla (NASDAQ:TSLA) shares slumped over 8% in the face of a strong market rally after the EV maker reported delivery figures missed analyst estimates albeit showing significant sequential growth from Q2. Deliveries totaled over 343,000 vehicles, nearly 95% of which were Model 3 and Y, while estimates ranged from 354,000 vehicles from Piper Sandler’s team to nearly 370,000 from Citi and 385,000 from Baird. With the lower-than-expected deliveries along with a handful of factors such as a growing dependence on China and a weakening yuan, revenues for Q3 are at risk of coming below estimates during its earnings report. Given the heightened volatility around Tesla and in the broader market, a cautious view of shares is likely warranted.
Tesla’s Deliveries Miss Expectations
Although Tesla’s deliveries fell short of analyst expectations, in part due to having nearly 20,000 vehicles “in transit at the end of the quarter,” deliveries still showed significant growth from Q2. Tesla also noted “it is becoming increasingly challenging to secure vehicle transportation capacity and at a reasonable cost during these peak logistics weeks.” Both factors combined weighed on deliveries, with production levels topping 365,000 vehicles.
Total deliveries rose to a new record, increasing +33% sequentially from Q2’s 258,580 units, and +44.6% from Q3 ’21’s 237,823 units. As expected, Model 3/Y production and deliveries dominated growth, up +42.1% y/y for the quarter.
Even with the record numbers, the tallies coming in below expectations raise a crucial question for the upcoming earnings report in two weeks’ time: how will revenues be affected?
Current data from 25 analysts project Tesla to report about $22.3 billion in revenues for Q3, +63% y/y and +33% q/q. Analyst expectations range from $18.4 billion on the low end to $24.3 billion on the high end.
Given that the projected sequential growth rates for quarterly growth rates in revenues and deliveries align, Tesla’s ability to meet these expectations seems sound, on the surface. However, given Tesla’s dependence on China as well as a weakening yuan, revenues are likely to feel some adverse impacts that energy storage may not be able to offset.
Adverse Impacts From China?
China’s data from Tesla shows a fluctuating picture of deliveries for Q3, with July seeing a significant drop of over 50,000 vehicles to record 28,217 units during the month. August recorded a sharp sequential increase, up to 76,965 vehicles. For July and August, China deliveries rose nearly +27% y/y.
Although exact figures have not been released for Tesla China’s September deliveries, volumes are not expected to surpass 80,000 units, given a recent shift to keep Giga Shanghai below maximum capacity. In addition, in accordance with prior historical trends, it’s also very likely that Tesla pursues a predominantly local market focus for September, with little (<5%) of volume exported.
Given China’s volume level so far through Q2, as well as projected delivery volumes of approx. 75,000 vehicles during the month used as a baseline (although reports suggest volumes in excess of 80,000 units are targeted). With about 75,000 units in September, Tesla’s geographic concentration in China surges: the region would account for nearly 50% of total production volumes, and over 33% of total deliveries (domestic only). As such, this concentration and relative weakness in the yuan is expected to weigh on results.
Geographic Concentration
There’s no doubt China is a crucial region for Tesla but projected September volumes above 70,000 units put the region as Tesla’s most influential. With 75,000 estimated for the month, China rises to over 52% of Tesla’s total Q3 sales volumes with around 180,000 units in total produced and delivered (domestically and exported).
Taking exports out of the equation, the domestic market is still vital – with an estimated 116,000 units of domestic sales in Q3, China accounts for just over one-third of Tesla’s total volume for the quarter. This concentration, along with a weakening yuan, is expected to weigh down revenues.
Weakening Yuan
The yuan has continuously weakened since April this year, falling from ¥6.34/$1 at the end of Q1 to ¥7.12/$1 at the end of Q3, as economic woes mount and as China’s growth outlook dims.
Relative to Q2, the yuan has weakened ~3.7% to an average of ¥6.86 in Q3, from an average of ¥6.61 the quarter prior. A trend of ASPs dipping in the region, down from ~$42,936 to $42,400 from Q1 to Q2, is forecast to persist in Q3. This decline in ASPs, compounded by a weaker yuan, can bring the region’s revenues below expectations.
Assuming ASPs remain equal from Q2 to Q3, revenues for China would be estimated around $4.91 billion; however, given the potential for weaker ASPs (potentially stemming from insurance subsidies being offered) along with the weakening yuan, revenues are projected to be ~$4.68 billion, about 4.7% lower.
ASP, FSD, Margins
While China sales may feel an impact from a continuing trend of dipping ASPs in Q3, the recent price hike of FSD to $15,000 in North America factors into the equation; however, the positive impacts from the hike are likely to be minimal at best. With the increase taking effect on September 5, there are limited days for the increase to factor into quarterly revenues and add extra padding, plus a falling take rate (reportedly around 6% for the 3 and 14% for the Y in Q4 ’21). Another price hike dims the chances of take rate improving in the short term, considering the macroeconomic environment.
In addition, cost pressures are likely to exist in the quarter – Tesla’s deliveries report already highlighted difficulties in finding transportation capacity at a reasonable cost, while China’s >50% contribution of production may also weigh on margins due to volatile aluminum prices, which generally remained high during August and September.
A Revenue Miss On Deck?
With these factors – the delivery miss, a weakening yuan, increased concentration in China, and falling ASPs in the region – all arising during the quarter, Tesla’s risk of missing Q3 revenue estimates of $22.3 billion is heightened. With China estimated to account for ~21.8% of revenues (slightly less than Q2’s 22.4% and Q1’s 24.7%), Tesla’s total revenues are projected to come in around $21.5 billion or about a 3.6% miss. However, the setup for Q4 appears more positive on the surface – 20,000 vehicles in transit, Shanghai output near highs as output in Berlin and Austin ramp – and could set the stage for a surge in deliveries and revenues. Again, given the heightened volatility around Tesla and in the broader market following a powerful two-day rally after a weak September, a cautious view on shares is likely warranted.
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