Several major companies will report third-quarter earnings next week. In particular, Netflix (NASDAQ:NFLX) and American Airlines (NASDAQ:AAL) are gearing up to provide recent financial results. Most eyes will likely be on Tesla (NASDAQ:TSLA), however.
Electric vehicle (EV) leader Tesla headed into this quarter with some high expectations. But when Q3 deliveries fell short of expectations, the disappointing results ignited a blaze of skepticism. Since then, Wall Street has been waiting for Tesla’s earnings to see if the company can meet expectations on the broader scale. The Q3 report will do much to determine how Tesla ends the year. Although TSLA stock rose yesterday on positive market momentum, it has been falling since markets opened today.
This morning, two analysts reiterated their price targets and maintained bearish stances on Tesla as well. Specifically, Berenberg analyst Adrian Yanoshik and Wells Fargo analyst Colin Langan issued “hold” ratings, although both still have fairly decent price targets. Langan cited concerns regarding rising interest rates, which may negatively impact expensive vehicle sales. If Tesla can meet or surpass expectations in next week’s report, however, Wall Street may issue more positive takes. That would send TSLA stock into the green for the final quarter of 2022.
Let’s take a closer look at what investors should be watching for in the Q3 report.
TSLA Stock: The Big Picture on Production
Next Wednesday, the word of the day will be production. More specifically, investors will want to examine Tesla’s overall production progress. In September 2022, the company laid out plans for doubling EV sales from Giga Berlin by the end of the year. Updates from the German gigafactory will provide investors with some insight as to how well this ambitious growth plan is going. Per Barron’s:
“Hitting the goal for 2022 would represent a big final four months of the year and an acceleration of sales from the first eight months. It would be a sign that Tesla’s new plant in Germany is having some success ramping up production.”
Another question Wall Street wants answered has to do with Chinese EV production. Is Tesla production truly recovering from earlier shutdowns at the company’s Shanghai facility? These setbacks led to a dip in Q2 deliveries. TSLA stock also fell earlier in October after the company failed to meet production and delivery expectations. The upcoming quarterly report should show a bigger picture — and perhaps give investors cause for optimism.
Is Demand Still Booming?
One of the defining market trends of 2022 has been the rising tide of EV demand. For one, rising gas prices have helped compel many drivers to go electric. However, Langan isn’t the only expert raising concerns about increased living costs and the potentially negative impact on expensive EV demand.
Recently, analyst Adam Jonas of Morgan Stanley cited “demand destruction” as a possible macroeconomic headwind that may hurt TSLA stock in the coming year. Earlier this week, Jonas maintained a “buy” rating but reduced his price target to $350, down from $385 per share.
Yahoo! Finance reports that, although more drivers now say they plan on purchasing an EV, “that switch has been postponed further into the future as the cost of living crisis bites.” Tesla is largely considered the leader of the EV sector and its sales figures do much to indicate the robustness of overall EV demand. Accordingly, investors should carefully watch the report; it will likely have implications for the entire sector.
Battery Production Updates
Tesla’s battery production may not receive as much attention as its EV operations, but that doesn’t mean it isn’t worth watching. Until today, Tesla had planned to launch a facility to build EV batteries outside its Berlin gigafactory. Now, the operation is on pause until 2024, according to sources close to the company. Tesla has provided little information on the news but it may address the change on its earnings call. Investors are sure to be wondering why the plan has been halted.
The strength of Tesla’s battery production is important for reasons spanning beyond the company. If the EV leader turns out to be keeping pace with its goals on that front, it could mean supply-chain problems are easing. Additionally, experts have raised questions about whether the world’s lithium supply is sufficient to power the fast-growing EV sector. If Tesla does not report any problems procuring battery materials, that may help ease investor anxieties as well. The Q3 earnings report will likely mean an update on Tesla’s overall battery progress.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
