This is The Takeaway from today's Morning Brief, which you can receive in your inbox every Monday to Friday by 6:30 a.m. ET along with:
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The bar is set pretty high for Tesla's earnings out after the close today.
Why do I say that? It's really quite simple, actually.
Shares of the EV maker have surged 70% off the Jan. 3 lows on the basic premise that Tesla's profit margins will stay strong in the face of repeated price cuts that began in the second half of 2022. But that singular focus misses the many nuances inherent to the first Tesla earnings report of 2023.
For starters, investors will be keen to see if CEO Elon Musk will even be on the earnings call. Musk held court with investors and analysts last earnings call for more than an hour. There is no guarantee the prickly billionaire will reappear as he said in the not too distant past he would not be on every earnings call. Musk does have a few other day jobs, as we know full well.
So there are those important optics on a story stock like Tesla.
As for the fundamentals of Tesla, investors want to get insight into a few things.
First, can Tesla's gross profit margins still hit the 20% bogey in 2023 if it stays out there slashing prices with rivals like Ford, General Motors, Xpeng, Nio and BYD nipping at its heels. Yahoo Finance's Seana Smith reports on what Tesla's rivals are up to and it's impressive, and suggestive of further Tesla price cuts this year and into 2024.
Investors have come to expect Tesla's gross profit margins in one direction — up and to the right. Based on my number crunching, Tesla's gross profit margins have expanded from 16.6% for the 2019 reporting year to 25.6% last year. The Street is modeling for gross profit margins of 21.9% this year, as if to not factor in price cuts.
If Tesla comes out tonight voicing concern on that 20% gross profit margin mark, look for the stock to get hit as it would hint at downside risk relative to estimates. The 20% gross profit margin is a line item that fuels the entire engine that is Tesla — cash flow generation that allows for aggressive reinvestment in plants and technology. And then, a great story by hypeman Musk.
So any margin stumble would be unwelcome.
Then there is chatter of a cheaper Model 2 vehicle in development. Tesla hasn't confirmed this, but investors would like to hear more from a company that has been producing the same-looking cars for five or six years and is battling increasing lower priced EV options.
"At current prices, there is likely more "risk" than "reward" in Tesla, especially with no clear timeline on a Model 2 reveal or SoP (we see volume ramping mid 2025 into 2026) and potential demand drag in 2H/2024 as Model Y saw an order surge during January's price cuts. If heightened US demand for Tesla's (now 5–6-year-old) 3/Y is not persistent beyond 1H '23, the company could face increased scrutiny in the wake of lower-priced EV competition coming to market (particularly from BYD in China), with the stock reacting accordingly," says EvercoreISI auto analyst Chis McNally.
McNally's Tesla analysis makes a lot of sense at the moment.
And the Yahoo Finance team of yours truly, Brad Smith, and Pras Subramanian will look to make sense of Tesla's earnings call in our latest 'After the Call' taping. We will go live on the Yahoo Finance homepage and YouTube immediately after the Tesla call wraps so please do tune in.
Now about that new Volkswagen EV...