Tesla drops as Musk says demand ‘a little harder’ to come by

Chief Executive Officer Elon Musk kicked off Tesla’s earnings call with ebullience, telling analysts he was looking forward to an “an epic end of year.” He later allowed that downturns in China and Europe and the Federal Reserve’s interest rate increases are having an effect on orders.

“Demand is a little harder than it would otherwise be,” Musk said. “But as I said earlier, we are extremely confident of a great Q4.”

Tesla shares fell 7.6% to $205.20 at 9:37 a.m. in New York. The stock has dropped 37% this year through Wednesday’s close.

Getting cars onto ships, trains and trucks proved costly and challenging in the latest quarter, as much of the EV maker’s output was concentrated in the final weeks. This contributed to Tesla producing over 22,000 more cars than it delivered during the period, which concerned some investors going into the earnings report.

Chief Financial Officer Zachary Kirkhorn cautioned that investors should expect a gap between production and deliveries again in the fourth quarter, with more cars still in transit at year-end that will be delivered early in the first quarter.

Kirkhorn also said that costs linked to ramping up output at Tesla’s newest factories in Austin, Texas, and near Berlin weighed on profitability. While those expenses will continue to put a damper on margins as the year ends, the company expects less of an impact than the third quarter.

The company’s automotive gross margin narrowed to 27.9% in the quarter, falling short of the 28.4% average analyst estimate.

“Tesla is a company that typically has been beating numbers,” said Gene Munster, managing partner of Loup Ventures, a venture capital company. “The reaction you’re seeing is that people are a bit taken aback by the fact that they missed.”

Tesla said profit excluding some items rose to $1.05 a share, exceeding the $1.01 average estimate compiled by Bloomberg.

To address the transportation bottlenecks, Tesla is trying to smooth its delivery and logistics processes and move away from its costly end-of-quarter rush of hand-overs to customers.

In April, Musk said Tesla would produce more than 1.5 million vehicles this year. The company has made 929,910 through the first three quarters, meaning it needs to crank out more than 570,000 in the fourth quarter to meet that target. It produced 305,840 vehicles in the final three months of 2021.

Tesla is sticking to its long-held plans to increase vehicle deliveries by 50% on average annually over multiple years. Musk said he expects to be present for the first Semi truck deliveries to PepsiCo in December and that the company is in the “final lap” of work on Cybertruck, which will start production in the middle of next year.

After dangling the prospect of a share buyback during Tesla’s annual meeting in August, Musk said that the board has been debating the idea and “generally thinks that it makes sense.” A repurchase on the order of $5 billion to $10 billion is “certainly possible” even if next year is very difficult, he said.

He also speculated that Tesla’s market value, now at $696 billion, could one day exceed the combined capitalization of Apple Inc. and Saudi Aramco, two of the world’s most valuable companies. Together, they are worth more than six times Tesla’s capitalization at around $4.4 trillion.

“This is the first time I’ve seen that potential,” Musk said. “We’ve got the most exciting product portfolio of any company on earth, some of which you’ve heard about, some of which you haven’t.”

(By Dana Hull, Sean O’Kane and Graham Starr)