'Recession-resilient' Tesla misses Q3 expectations, slows Mexico expansion

Tesla's Q3 2023 earnings missed Wall Street expectations, sending stocks tumbling after-hours, but hey – we finally have a Cybertruck delivery date.

Analysts expected Tesla to report earnings per share of around $0.73 and revenue at $24.1 billion, but the company failed on both counts, earning just $0.66 per share and making $23.35 billion in revenue.

On the earnings call, which began abruptly in the middle of Tesla owner Elon Musk's opening remarks, the billionaire blamed high interest rates and global economic uncertainty for the electric car maker's less-than-stellar quarter – the first since Q2 2019 that Tesla missed both earnings per share and revenue expectations.

"I'm worried about the high interest rate environment that we're in," Musk said. "I just can't emphasize this enough that the vast majority of people buying a car is about the monthly payment. And as interest rates rise, the proportion of that monthly payment that is interest increases naturally."

Musk's tone was decidedly different from his claims late last year that Tesla was "recession-resilient," and that pessimism likely didn't help stock prices. Tesla share fell nearly seven percent in after-hours and pre-market trading, and continued to fall once US markets opened.

That economic uncertainty means Tesla is slowing its work on a planned Mexico factory too.

"In Mexico we're laying the groundwork to begin construction and doing all the long lead items. But I think we want to just get a sense for what the global economy is like before we go full tilt on the Mexico factory," Musk said.

As we noted when the planned Mexico factory was discussed at Tesla investor day this year, the company said it saw the facility as a way to reduce its manufacturing costs, meaning construction delays could have an effect on future earnings.

Tesla has cut prices across the globe on multiple occasions this year while facing increased competition from major, well-established automakers as they roll out their own electric vehicles. Tesla is facing competition in the self-driving lane too, and is reportedly slipping behind the competition in regards to its Full Self-Driving (FSD) capabilities.

"As interest costs in the US have risen substantially, it has required us to adjust the price of our vehicles to keep the monthly cost in parity," Tesla CFO Vaibhav Taneja told investors yesterday. "We've tried to offset such adjustments via focus on reducing costs. However, there is an inherent lag in cost reductions, which in turn impacts margins."

Cybertruck'll distract 'em ... if expectations are kept low

Tesla's usual flagship product placement, its FSD tech, was conspicuously absent from the call aside from some brief mentions during questions regarding its pricing, giving Musk a chance to flog another "upcoming" product: The much-delayed Cybertruck.

Problems have beset the boxy behemoth since it was announced in 2019, and both the COVID-19 pandemic and Russia's attack on Ukraine, caused supply chain disruptions for multiple industries. That said, Tesla finally gave an actual delivery date for the Cybertruck: November 30.

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Whether this date will stick is anyone's guess, but several supposed Cybertruck launches have been missed, most recently in Q3, which Musk said would happen in April on Tesla's Q1 2023 earnings call.

Even with the planned November delivery, Musk told investors to "temper expectations" for Cybertruck, the first of which only rolled off the assembly line in July.

"Prototypes are easy, production is hard," Musk said, emphasizing that it'll take some time for Cybertruck production to reach volume or for the vehicle to become cash flow positive despite the fact that "over 1 million people [have] reserved the [Cybertruck]."

"It's a great product, but financially it will take, I don't know, a year to 18 months before it is a significant positive cash flow contributor," Musk claimed. "I wish there was some way for that to be different, but that's my best guess."

Musk said that he expects Tesla to reach a Cybertruck production capacity of 250,000 vehicles per year, but that's unlikely to happen until 2025. With more than one million supposed reservations, Cybertruck buyers can expect to be waiting a while.

The Cybertruck has also been hampered by reports of poor quality, with misaligned panel gaps visible on pre-production models. Internal Tesla emails leaked in August had Musk complaining about "any dimensional variation [showing] up like a sore thumb." Bear in mind this is after Cybertruck production reportedly began. 

"All parts for this vehicle, whether internal or from suppliers, need to be designed and built to a sub-10 micron accuracy," Musk said in the alleged email to Tesla staff.

We'll know soon whether Tesla's admitted quality control issues are resolved in regards to the Cybertruck – or perhaps not. Release dates have a habit of coming and going in Elon land.

"Special products that come along once in a long while are just incredibly difficult to bring to market," Musk told investors. "We dug our own grave with Cybertruck." ®