8 Big Questions Facing Tesla Ahead of its Earnings Report

Tesla, the world's most valuable carmaker, is set to release its third-quarter earnings report today. 

Shares in the firm are currently down almost 50% since their peak in 2021, as the electric vehicle manufacturer continues to dominate headlines, it faces numerous challenges that could significantly impact its future. 

With increasing competition in the automotive sector and heightened scrutiny over its autonomous driving technology, Tesla's upcoming report will be closely watched by investors and analysts alike. 

Elon Musk’s company has already published some preliminary figures, revealing a 6.4% year-on-year increase in vehicle deliveries, but this falls short of Wall Street expectations. 

As Tesla navigates these complexities, several critical questions arise regarding its growth trajectory, profitability, and strategic direction.

1. Can Tesla maintain its delivery growth?

Tesla has already announced it delivered 462,890 vehicles in Q3, a 6.4% rise compared with the same quarter last year. Although this marks the company's first quarter of year-on-year delivery growth in 2024, the figure is below Wall Street’s estimations.

The company is still recovering from delivery declines in the first two quarters of 2024.

2. Is Tesla’s software safe?

Tesla's Full Self-Driving (FSD) software has come under scrutiny from safety regulators due to reported crashes, including fatal incidents. 

A new inquiry was opened into 2.4m Tesla vehicles equipped with FSD last friday (18 October 2024) by the US National Highway Traffic Safety Administration (NHTSA) after four reports of crashes. 

Concerns focus on the system's ability to handle low-visibility conditions and its reliance on cameras without backup sensors like LiDAR or radar. 

3. Can Tesla overcome the mounting scandal around its autonomous driving technology?

The US NHTSA inquiry focuses on FSD's performance in reduced visibility conditions such as fog, sun glare, and airborne dust.

This investigation comes at a critical time for Tesla, as CEO Elon Musk seeks to pivot the company's focus towards self-driving technology and robotaxis. 

The robotaxi concept is operated by cameras and AI, it will not be able to be used on US streets without approval from the NHTSA.

4. Can Tesla’s robotaxi vision convince sceptical investors?

Shares dropped 8% after the recent robotaxi event as investors felt the company did not provide sufficient detail concerning its strategy, ride-share economics and updates on its self-driving software. 

Musk appeared on stage at the event which took place on 10 October in a “Cybercab” which is due to be produced from 2026. He said that running the Cybercab will cost 20 cents a mile over time and charging will require no plugs.

One shareholder, Dennis Dick, at Triple D Trading, told Reuters: "I'm a shareholder and pretty disappointed. I think the market wanted more definitive time lines," adding "I don't think he said much about anything."

5. How is Tesla addressing its shrinking profit margins?

The company's profit margin shrank to its lowest level in three years during the second quarter of 2024, dropping to 14.4% from 18.7% a year earlier. 

This is the fourth straight quarter of shrinkage, the decline is primarily attributed to substantial price cuts and incentives implemented to boost vehicle sales. 

Additionally, hefty investments in AI projects and robotics development are further straining Tesla's profitability. 

6. Can Tesla reverse its stock performance slump?

Tesla's stock has experienced a significant decline, with shares down by almost 50% since their 2021 peak. 

This downturn is particularly notable as Tesla is the only member of the "Magnificent Seven" tech stocks to see such a decline over the past year. 

Investors are closely watching for signs of recovery and whether Tesla can regain its former market momentum. The company's ability to deliver on its promises and navigate challenges in the EV market will be crucial in determining its stock performance trajectory.

7. How does Tesla justify its high valuation amid concerns?

Despite recent stock declines, Tesla maintains a market valuation of nearly $700bn. 

Tesla must demonstrate strong growth potential and profitability to justify these figures. The company's investments in autonomous driving and expansion into new markets will be closely scrutinised as investors assess whether Tesla can deliver returns commensurate with its lofty valuation.

The company's ability to deliver returns that align with its lofty valuation depends on successfully executing these strategies and meeting ambitious financial targets in an increasingly competitive electric vehicle landscape.

8. How is Tesla handling increasing competition in the EV Market?

Tesla faces growing competition in the EV market, particularly in Europe, where BMW overtook it as the leading brand for fully electric vehicles in July 2024, according to Fortune.

Traditional automakers and new entrants are rapidly expanding their electric vehicle offerings, challenging Tesla's market dominance. 

The company must continue to innovate, improve its product line up, and maintain its brand appeal to stay ahead of competitors. Tesla's strategy for defending its market share and expanding into new segments will be critical in navigating this increasingly competitive landscape.