Wall Street shifts focus back to Tesla's core auto business ahead of earnings as robotaxi hype fades

• Tesla investors will be closely watching profit margins when the company reports earnings on Wednesday.
• Tesla stock is down 13% this year compared to the S&P 500's 22% gain.
• Some analysts expect Tesla's third-quarter earnings to signal a turning point, while others see more pain ahead.

Tesla will report third-quarter earnings results after the market close on Wednesday, and Wall Street will be hyper-focused on the company's core auto business.

That's a shift from the recent hype surrounding Tesla's robotaxi, which is still years away from hitting the market.

At the end of the day, Tesla gets the bulk of its revenue and profits from selling cars, and Wall Street wants to see the company return to growth mode in its core auto business.

The company is on track to deliver about the same number of cars this year as it did in 2023, and it has seen a steady deterioration in its profit margins due to aggressive price cuts earlier this year.

Tesla stock is down 13% year-to-date, compared to a 22% gain for the S&P 500 over the same time period.

However, some analysts on Wall Street expect the upcoming third-quarter earnings print will be a sign that the worst is behind Tesla.

Here's what Wall Street expects from Tesla's upcoming earnings report.

Barclays: 'Back to fundamentals'

"With Tesla's Robotaxi Day passed, we believe the focus for Tesla at least for now shifts back to fundamentals," Barclays analyst Dan Levy said in a note last week.

Levy expects Tesla to beat earnings estimates, with estimated earnings per share of 68 cents versus consensus of about 60 cents.

"After a run of sharply negative revisions to earnings estimates, Tesla estimates have largely stabilized. Volumes are expected to be flat y/y, margins have troughed and are set to improve, reg credit revenue can be a solid boost as other OEMs rely on Tesla to achieve compliance, Tesla Energy is generating solid growth, and opex may trend lower for now as Tesla realizes the cost saves of headcount reductions," Levy said.

Those points, along with the fact that Tesla stock sold off after its robotaxi event, give Levy confidence that the company's third-quarter earnings will be a positive catalyst for the stock.

Aside from Tesla discussing the earnings results and guidance on its conference call, Levy said any commentary about plans for a lower cost vehicle could move the stock.

"We also wouldn't dismiss the notion that Tesla could forgo a 'Model 2.5,' instead focusing its resources on rolling out the [autonomous vehicle] strategy — such a move would likely be treated quite negatively by the stock," Levy said.

Barclays rates Tesla at "Equal Weight" with a $220 price target.

Wells Fargo: 'Volumes now, margin pain later"'

After Tesla reported "disappointing" third-quarter deliveries earlier this month, Wells Fargo expects the company to make up for the shortfall in sales by offering "aggressive finance promos globally," analyst Colin Langan said in a note last week.

"We est. the Q3 promotions are equivalent to ~8% lower effective px cut," Langan said, adding that he expects the company to miss Wall Street's third-quarter earnings estimates.

Langan estimates that Tesla's automotive gross margin excluding credits will be 13.6% in the third quarter, down from 14.6% in the previous quarter.

Wells Fargo rates Tesla at "Underweight" with a $120 price target.

Wedbush: 'Margins will be a key focus'

Wedbush analyst Dan Ives is staying bullish on Tesla stock, arguing that the company should show a return to growth in its third-quarter earnings call and forward guidance.

"We expect generally in-line 3Q headline numbers with some slight upside likely on the margins front showing a bottoming on this key metric," Ives said in a recent note.

Ives said Tesla should be able to deliver 1.8 million vehicles in 2024, and that should rise to more than 2 million vehicles in 2025.

But perhaps more important than vehicle deliveries for Wall Street is Tesla's profit margins.

"Margins will be a key focus on the conference call"," Ives said.

He added that investors will want to see this key metric trending in the high teens for the third and fourth quarters and heading toward 20% in 2025. That should soothe fears about further price cuts and convince investors that better days are ahead, Ives said.

Wedbush rates Tesla at "Outperform" with a $300 price target.

Bloomberg Intelligence: 'More pain to come'

Tesla's aggressive price cuts of 20% over the past year, combined with a plunge in trade-in values for Tesla vehicles, suggests that there's "more pain to come."

That's according to Bloomberg Intelligence director of credit Research Joel Levington, who said in a Tuesday note that Tesla's price declines are putting its luxury brand identity at risk.

Additionally, Levington said that with Tesla facing more competition, it needs to release a lower-cost vehicle.

"Tesla is poised to give up share as rivals from Acura to Volvo create a tsunami of new EV products that will flood the markets, making the lower-cost Model 2 and updates of its data product line critical," Levington said.