Tesla: Q3 Deliveries Come in Below Market Expectations

Tesla TSLA announced third-quarter deliveries of just over 435,000 vehicles, down from the roughly 466,000 vehicles delivered in the second quarter. Management attributed the lower volume to planned downtimes for factory upgrades, which is consistent with the company’s reduced production during the quarter of a little over 430,000 vehicles. Through the first three quarters of 2023, Tesla has delivered over 1.3 million vehicles, and we think it remains on track to meet our 2023 deliveries forecast of 1.8 million vehicles. Accordingly, we see no reason to change our $215 fair value estimate. Our narrow moat rating is also unchanged.

Tesla shares were down slightly on the deliveries news. At current prices, we view the stock as slightly overvalued, with shares trading in 3-star territory, but a little more than 15% above our fair value estimate. Accordingly, we recommend investors wait for a larger pullback and for shares to offer a margin of safety before recommending an entry point.

In the deliveries news release, Tesla reiterated management’s target for 1.8 million deliveries for 2023, which implies around 476,000 deliveries in the fourth quarter. We think Tesla will be able to ramp up its factories to produce this level. To ensure there is enough demand to meet the higher production, we think Tesla will continue to reduce prices or offer other incentives, such as free charging.

Looking at the third-quarter results, we expect Tesla’s profit margins will be sequentially lower, reflecting price cuts and lower production, partially offset by a small decline in raw materials costs. Based on our current forecast, we expect profit margins will bottom out in the second half of the year. We expect a small improvement in 2024 as higher production and falling raw materials costs are partially offset by lower prices versus the prior year.