Tesla Q3 FY2022 Earnings Report Preview: What to Look For

Tesla Inc. (TSLA), the largest automobile manufacturer in the world by market capitalization, will likely say that year-over-year (YOY) profit growth decelerated relative to the prior-year quarter for Q3 FY 2022 amid a cooling economy and ongoing supply chain challenges.

Tesla probably say adjusted earnings per share (EPS) excluding certain items rose 63.2% YOY to $1.01, while revenue increased by 58.9% to $21.9 billion, according to an average estimate from Visible Alpha. The company completed a 3-for-1 stock split in August 2022.

Carmakers like Tesla have had difficulty meeting customer demand in recent months as global shortages of materials used in auto manufacturing have throttled production capacity. Now, as the global economy cools and consumers fear a possible recession, demand may start to wane. A backlog of vehicles in Tesla’s inventory could suggest that it has produced more cars than it has been able to sell as consumer demand drops. Tesla Chief Executive Officer (CEO) Elon Musk also has engaged in a highly publicized and acrimonious legal battle with Twitter Inc. (TWTR) since he initially offered to purchase that company in April 2022. Musk has sold or borrowed against billions of dollars of Tesla stock to help fund the deal, potentially affecting the carmaker’s stock price.

Investors already have seen one key metric announced on Oct. 2, 2022: quarterly vehicle production numbers, which give an early indication of earnings and revenue. Tesla produced 365,923 vehicles for Q3 FY 2022 and only shipped 343,830, pointing to a possible backlog, as described. Still, Tesla’s production beat analyst expectations of 363,300 for the quarter.

Tesla stock rallied in late July and early August but has in recent weeks declined significantly, more than giving up those gains. The stock has performed erratically in the last year but overall has dropped by a wide margin. Tesla shares have provided a one-year trailing total return of -24.6%, compared with -19.3% for the S&P 500 as of Oct. 17, 2022, as shown below.

Tesla Earnings History

Tesla’s adjusted EPS grew at a tremendous pace throughout FY 2020 and FY 2021. The company’s quarterly adjusted EPS more than doubled YOY in all but one of those quarters. This pace kept up for Q1 FY 2022 but dropped drastically last quarter, when the company posted adjusted EPS gains of a relatively modest 56.9% YOY. Analysts predict another slowdown in adjusted EPS growth relative to the prior-year quarter for Q3 FY 2022, although adjusted EPS growth is expected to accelerate slightly in comparison with Q2.

The company’s revenue performance has been more modest. Revenue has climbed YOY for each quarter since the beginning of FY 2020, save for Q2 of that year. It accelerated from 39.2% YOY growth in Q3 FY 2020 to 98.1% growth for Q2 FY 2021. Tesla has not been able to maintain that pace of growth, though. For Q2 FY 2022, Tesla reported the slowest revenue growth in about two years at 41.6%. Now, analysts expect an improvement on both a sequential basis and compared with the prior-year quarter, forecasting the company should say revenue grew by 58.9%.

^{Sources: Visible Alpha; Tesla Q3 FY 2022, Q3 FY 2021, and Q3 FY 2020 stats}

The Key Metric

Vehicle production is a key metric for Tesla, as the company’s primary business is making electric cars and it needs to continue expanding production to grow revenue and profits. It has become harder to increase production levels amid the aforementioned supply chain issues. And as production levels grow, Tesla says it faces new logistics challenges as well, including the difficulty of securing new-vehicle transportation capacity at a reasonable cost. This could slow down deliveries and offset gains by increased production and sales.

Tesla’s vehicle production has slowed due largely to these factors, though a turnaround may be in progress. The carmaker announced that it produced 365,923 vehicles for Q3 FY 2022, up 53.9% YOY. This figure surpassed analyst predictions. It represents a slight slowdown in vehicle production growth YOY relative to Q3 FY 2021, which posted a 64.0% YOY increase in vehicles made. But to be sure, it is a sharp increase on a sequential basis, as a 25.3% YOY improvement in vehicles produced was reported for Q2 FY 2022.