Tesla Stock Price Forecast Ahead of Q3 Earnings: Buy or Sell?

Tesla stock price has pulled back over the past few days, moving from its year-to-date high of $470 to the current level of $430. It has jumped by about 102% from its lowest point this year. This article explores what to expect ahead of its earnings next week.

Tesla Earnings Preview

Tesla stock price is likely to remain highly volatile in the coming days as the electric vehicle giant publishes its third-quarter earnings, which are expected to be strong.

The most recent delivery numbers showed that the company delivered 497,099 vehicles in the third quarter. It sold 167,099 vehicles in September, following deliveries of 165,000 in July and August.

The jump in deliveries happened as customers rushed to utilize the $7,500 EV credit, which has now expired. Its Chinese business also had stronger-than-expected sales in September.

Data compiled by Yahoo Finance shows that analysts expect the upcoming results to show that its revenue rose by 5.23% YoY in the third quarter to $26.5 billion. The highest estimate from a Wall Street analyst is $28.78 billion in revenue.

However, analysts expect the company’s earnings to continue deteriorating as it continues to spend on R&D. The earnings-per-share are expected to come in at 55 cents, down from 72 cents in the same period last year.

In addition to the headline earnings, the Tesla stock price will react to the forward guidance for the fourth quarters and the full year. The expectation is that Tesla’s Q4 revenue will drop by 0.27% to $25.64 billion, while the full-year figure will drop by almost 4% to $94 billion.

TSLA Stock Faces Major Headwinds

Tesla stock price is facing major headwinds that will hurt its performance over time. First, the company will be affected by the end of federal and state tax credits in the next few quarters, before customers fully adopt the new normal.

Second, the company recently lost one of its most profitable businesses: regulatory credits it sells to other automakers. Estimates indicate that the company has generated over $10.7 billion in these credits over the last decade, with $2.4 billion in the most recent financial year alone.

Trump and Republicans argued that ending these credits would help lower the cost of vehicles to customers. For Tesla, this will be a loss of one of its most profitable businesses.

Third, and most importantly, Tesla is valued as a super-growth company, while in reality, its business has stalled.

Data compiled by Seeking Alpha shows that it has a forward P/E ratio of 297, significantly higher than the sector median of 18. The PE multiple is significantly higher than that of other faster-growing companies, such as Nvidia, Palantir, and Microsoft.

Additionally, the company’s recent product launches have not been all that successful. For example, sales of its Cybertruck have plunged this year. It sold only 5,400 vehicles in the last quarter, meaning that it will not hit Elon Musk’s target of 250,000 vehicles per year. Tesla’s semi truck has continued to struggle in the past few years.

Tesla stock will also come under pressure as competition in China and Europe intensifies. Chinese EV companies like Xpeng, Li Auto, and Xiaomi have continued to do well, while European brands like VW and BMW are gaining market share in the EV industry. Its recently launched Indian business continued struggling.

Tesla Stock Price Technical Analysis

The daily timeframe chart shows that the Tesla share price has pulled back over the past few weeks, moving from a high of $470 to its current level of $ 430.

There are signs that the stock has formed an island reversal pattern, which happens after an asset makes a gap move. In its case, the gap move occurred in September when Musk hinted at a more affordable vehicle.

The Relative Strength Index (RSI) has continued falling, while the two lines of the MACD indicator have formed a bearish crossover.

Therefore, the most likely scenario is where the stock continues falling as sellers target the next key support level at $400.