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Earnings Outlook: Tesla earnings preview: Wall Street braces for ‘difficult’ second quarter

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Tesla Inc. is scheduled to report earnings on Wednesday after the bell, with Wall Street worried it will be a “difficult” quarter for the electric-vehicle maker amid ongoing supply-chain snags and pandemic-related factory shutdowns.

“We fully expect a difficult (second quarter), based on continuing supply-chain issues and factory shutdowns,” said Bill Selesky, an analyst with Argus Research.

Tesla
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+0.54%

earlier this month reported a quarter-on-quarter fall in deliveries, its proxy for sales, leading some analysts to cut their expectations for the EV maker’s quarter.

But some of the issues facing Tesla are already accounted for in Wall Street estimates, and investors are aware, Selesky said. He said he expects Tesla to “modestly” beat expectations thanks to reduced costs and relatively strong margins.

Dan Levy at Credit Suisse said the “key question” for investors next week will be “the magnitude of margin pressure from the Shanghai shutdown” due to China’s “COVID zero” policies.

Levy said he expects margin recovery in the second half of the year as “Tesla ramps on volume.”

Here’s what to expect:

Earnings: Analysts polled by FactSet expect Tesla to report adjusted earnings of $1.86 a share in the second quarter, which would compare with adjusted earnings of $1.45 a share in the second quarter of 2021.

Estimize, a crowdsourcing platform that gathers estimates from Wall Street analysts as well as buy-side analysts, fund managers, company executives, academics and others, is expecting an adjusted profit of $2.17 a share for Tesla.

Revenue: The analysts surveyed by FactSet are calling for sales of $16.6 billion for Tesla, which would compare with $12 billion in the second quarter of 2021. Estimize is expecting $17.5 billion in revenue for the quarter.

Stock price: Tesla shares have underperformed the broader index, losing about 34% so far this year compared with losses of around 21% for the S&P 500 index
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In the past 12 months, however, Tesla stock outperforms the broader index. It has gained 7% in that time span, contrasting with losses of about 14% for the S&P 500.

What else to expect: The COVID-related shutdowns in Tesla’s Shanghai factory won’t be the only factor pressuring margins in the second quarter, Credit Suisse’s Levy said in his note.

Tesla’s factories in Berlin, Germany, and Austin, Texas, added some volume, but in both locations “progress remains slower-than-hoped,” with Austin a “slower ramp” given that it is tasked with using the new 4680-battery cell architecture, he said.

“We continue to believe expectations must be managed appropriately on the shape of the ramp for both facilities,” Levy said. Credit Suisse expects “a challenged 2Q, but remain structurally positive,” the analyst said.

Tesla also has to contend with concerns around Chief Executive Elon Musk’s attempt to end the deal to buy social-media company Twitter Inc. Twitter
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earlier this week called Musk’s attempt to walk away from the social-media company “invalid and wrongful.”

Musk’s Twitter bid was fueled in part by his Tesla stake.

Concerns about the state of the U.S. economy are also likely to factor into Wall Street’s expectations for Tesla in the quarter. The company filed layoff notices in California recently, affecting about 230 employees in San Mateo County.

See also: Tesla’s top AI exec Andrej Karpathy, who helped develop Autopilot, is leaving

“This represents the latest series of layoffs as Tesla looks to scale back its salaried head count by about 10% globally,” or a cut of around 3.5% to its overall workforce including hourly workers, Deutsche Bank Emmanuel Rosner said in a recent note. The layoffs are expected to occur “over the next three months in anticipation of a coming recession,” the analyst said.

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