Could Tesla's Q1 Results Recharge The U.S. EV Industry Amid Price Cuts, Policy Pressures?

For the latest on how pricing, regulatory, and global supply chain decisions might drive today’s electric vehicle (EV) industry, all roads lead to Tesla’s TSLA quarterly earnings report after tomorrow’s close.

Recent conversation about the largest global EV maker has mostly focused on the potholes. Early last week, Goldman Sachs (GS) cut its annual earnings and share price estimates due to Tesla’s brand becoming “more polarizing,” though it kept TSLA’s rating a buy. The “polarizing” comment, for those exceptionally busy since last fall, refers to Tesla CEO Elon Musk’s turbulent ownership of Twitter that’s lit up news cycles since Musk’s takeover.

However, spring arrives with a mix of uneven news that may overshadow Musk’s still-evolving social-media platform operating skills. Back in January, he electrified auto industry-watchers with a global price cut of as much as 20% on certain Tesla models, and more cuts have come since. Analysts wonder how well these price cuts will affect margins in a still-nervous interest rate environment with heightened recession fears.

Yet earlier this month, the firm reported record Q1 deliveries—though not specific to any model.

And then there’s Washington. Last month, the Biden administration announced new rules for the 2022 Inflation Reduction Act (IRA) that would cut the number of EVs qualifying for federal consumer EV tax credits based on where manufacturers source materials and operate assembly lines. As China remains the world’s No. 1 source for batteries and other raw materials that power EVs—and is now the No. 1 consumer market for EVs—Tesla, at least for now, seems in an enviable spot. It needs Chinese suppliers to serve an expanding world market because TSLA now produces more than half its cars it sells from a Shanghai factory that opened just four years ago.

As an aside, we know that China never made a global splash in combustion vehicles, but a February article in MIT Technology Review detailed how quickly the nation’s pivot to EVs is moving, from 1.3 million cars sold in 2020 to 6.8 million in 2022, “the eighth consecutive year in which China was the world’s largest market for EVs.” Car and Driver singled out Chinese brands BYD, Nio, Human Horizons, XPeng, and Geely (which owns Volvo) as the nation’s best contenders for global Chinese EV expansion.

What will it take for these global EV manufacturers and others to gain a similar toehold in the U.S. market? Assembly operations now mandated by the IRA will be essential, as pointed out in a February Los Angeles Times story about the nation’s No. 3 auto brand, according to S&P Global. Without a full EV manufacturing footprint in the United States, customers may not qualify for the full $7,500 federal rebate—a potential sale-killer at the dealership.  

So for now, that’s one potential advantage in Tesla’s rearview mirror, and as of Friday, Tesla’s stock was up 70% from its 2023 low of around $108 per share shortly after the new year. But will there be any potential hard stops in TSLA’s strategy? Investors will want to learn more.

What to listen for in TSLA’s call:

• How will price cuts affect margins? Have investors gotten a ding from every TSLA price cut? Yes, Barron’s noted, but these dings haven’t lasted for long, adding “investors are getting used to them.” Instead, watch for pain points around wherever Q1 automotive gross margins land. In Q4, these margins were at 25.9%, the lowest in five years (but still above most competitors).
• Washington’s watching. How much will it matter? Listen for anything TSLA executives say about on how new IRA rules could affect sales. With manufacturer supply chains and manufacturing processes under the microscope in connection with these significant tax credits that have helped build U.S. EV popularity so far, could TSLA face any pressure to change how it manufactures or from where it sources?
• What about Megapack? Not everything that rolls out of Tesla comes with wheels. The company announced last week it will build a Megapack energy storage production facility near its existing Shanghai facility. Megapack builds large-size lithium-ion batteries to back up electrical grids for public utilities and private companies. The company already creates a similar solution for homes and smaller facilities called Powerwall. Meanwhile, TSLA has scaled back in solar—will it end up pulling the plug?
• Is the economy starting to bite? Late last month, the New York Fed reported that auto loan rejection rates rose to 9.1% in February, up from 5.8% last October and at the highest level since February 2017. Various reports indicate the average Tesla buyer is under 40, male, and makes more than $100,000 per year—if rates go higher and hiring cools even more, what will that mean for Tesla’s core customer? 

TURN SIGNAL? The Dow Jones U.S. Automobiles Index ($DJUSAU—candles) is up more than 50% year to date amid stronger year-over-year industrywide sales gains for Q1. On the EV side, Tesla (TSLA—pink line) and Lucid Group (LCID—orange line) share recovery was significant, but each has specific challenges threatening margins, delivery, and consumer health. Rivian (RIVN—blue line), meanwhile, is facing significant cost challenges, according to an investment firm that made a significant downgrade last Friday. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results. 

Latest consensus 

Here’s a review of key numbers to keep in mind as U.S. EV firms report:

Tesla (TSLA)

Scheduled report date: Wednesday, April 19, after the closing bell

• Expected Q1 EPS (analysts’ consensus): $0.86
• Year-ago EPS: $1.07
• Expected year-over-year EPS change: –19.6%
• Expected Q1 revenue (analysts’ consensus): $23.31 billion
• Year-ago revenue: $18.76 billion

For TSLA, Q1 deliveries came in at a record 422,000 vehicles, but overall sales totals came in short of analysts’ expectations. Yet many believe TSLA is ready for the long haul with the global price battle it launched at the beginning of the year. That could land a few smaller competitors on the ropes. Will it be the same for legacy automakers ramping up EV production with the sales and service infrastructure they have? Stay tuned.

Lucid Group (LCID)

Scheduled report date: Thursday, May 4, after the closing bell

• Expected Q1 loss per share (LPS) (analysts’ consensus): –$0.39
• Year-ago LPS: –$0.37
• Expected year-over-year LPS change: +5.4%
• Expected Q1 revenue (analysts’ consensus): $204.32 million
• Year-ago revenue: $57.67 million

Late last month, Lucid announced it was cutting 18% of its workforce amid sagging sales, adding that it expects to take a potential charge of $24 million to $30 million against Q1 earnings when it reports. Though revenue has grown significantly year over year, the company reported last week that it produced 2,314 of its upscale Air sedans in Q1 but delivered only 1,406 of them, according to published reports.

Rivian Automotive (RIVN)

Scheduled report date: Tuesday, May 9, after the closing bell

• Expected Q1 loss per share (LPS) (analysts’ consensus): –$1.59
• Year-ago LPS: –$1.43
• Expected year-over-year LPS change: +11.2%
• Expected Q1 revenue (analysts’ consensus): $624.9 million
• Year-ago revenue: $95 million

Last Friday, Piper Sandler downgraded RIVN shares, saying the company needs more cash. In recent weeks, the company moved engineers to its Illinois manufacturing facility to find ways to speed up production. 

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image sourced from Shutterstock

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