After the "Dream Shattered" for Robotaxi, will Tesla's Q3 financial report be a "double blow" or a "silver lining"?

According to the financial news app Zhitong Finance, Tesla (TSLA.US) is set to release its third-quarter financial performance after the market closes on Wednesday Eastern Time. Bloomberg data compiled shows that the Q3 company revenue is expected to reach around $25.4 billion, an 8.9% year-on-year increase. Analysts on average expect earnings per share to be $0.6, a 10% year-on-year decrease. With the stock price falling and profits shrinking, Tesla stands out even more among its tech peers with huge market capitalization. Investors are concerned that the release of quarterly results will further worsen the situation for this electric vehicle manufacturer.

The expectations for the third quarter have significantly declined compared to a year ago when analysts predicted earnings per share to be $1.09. Meanwhile, the key indicator traders are focusing on, the automotive gross margin excluding regulatory credits, is expected to reach 14.9%, slightly higher than the 14.6% in the second quarter.

This company led by Elon Musk is the only one among the "Big Seven" in the US stock market expected to see a decline in profits in the third quarter, and the only one on Wall Street expected to perform worse than a year ago. The stock has dropped by 12% this year, while other large tech giants are on the rise. Nevertheless, when compared to profits, it remains the most expensive stock in the group, giving it a challenging profit setting.

Earlier this month, Tesla released its autonomous driving car Robotaxi. If this remarkable release impresses investors, the third-quarter results after Wednesday's market close may not be as crucial as they are now. However, this self-driving taxi did not meet people's high expectations, putting even greater pressure on the company's main business of electric vehicle sales.

David Wagner, portfolio manager at Aptus Capital Advisors, said, "Investors are starting to lose patience with Tesla, especially after the Robotaxi event, which was more about ideas than execution. People's expectations for Tesla's core business growth in the next two years remain low."

Wall Street will closely monitor signs of slowing electric vehicle sales nearing a bottom and pay close attention to profit margins. Electric vehicle profit margins have been under pressure over the past year. Investors are also eager to hear more news about cheaper electric vehicle models.

A set of better-than-expected data will help boost some confidence in the short term, but analysts warn that without clearer long-term growth data, the stock price may struggle to rise significantly.

Piper Sandler analyst Alexander Potter wrote in a report, "Regardless of how the third-quarter performance turns out, we believe a sustained bullish re-rating may not occur until investors have reason to raise their estimates." Potter expects these positive factors to emerge next year, including the launch of a new product and the approval of the company's advanced driver assistance software (ADAS) in new regions such as China.

Cole Wilcox, portfolio manager at Longboard Asset Management, stated, "The most important factors for the stock in the short term are whether demand trends are above or below expectations, and whether the gross margin is higher or lower than expected." While Tesla's position in the electric vehicle market remains strong compared to competitors, Wilcox pointed out, "The demand for electric vehicles is no longer experiencing explosive high growth as it used to." "

Given that consumers have been squeezed by inflation, high borrowing costs, and concerns about economic slowdown, delaying purchases of big-ticket items, Tesla has been at the forefront of slowing demand for electric vehicles since the end of 2023. The company has been attracting buyers by significantly lowering prices and weakening emerging competitors. While this has helped them win some customers, it has not fully offset the impact of weak demand, with both revenue and profits being somewhat affected.

Lower profit expectations have also made Tesla's stock valuation appear even more expensive. The company's expected price-to-earnings ratio is 74 times, the highest among the mega-cap stocks consisting of Amazon (AMZN.US), Microsoft (MSFT.US), Apple (AAPL.US), Alphabet (GOOGL.US), Meta Platforms (META.S), and NVIDIA (NVDA.US).

Nevertheless, investors indicate that considering Tesla's innovation capabilities and its anticipated dominance in a future where autonomous driving cars become the norm, the company's position among the Big Seven remains effective.

Adam Sarhan, Founder and CEO of 50 Park Investments, said, "Tesla's upcoming earnings are crucial, but they are just a part of the overall picture," "At present, it is still too early to exclude Tesla from the Big Seven in the US stock market, but the company does face pressure to prove its worth."

"