Tesla shares plummet on worse than expected Q3 earnings

Tesla, Inc. (NASDAQ: TSLA) reported its third quarter earnings for fiscal year 2017 and had missed earnings estimates. Tesla shares were down 5.8 percent during pre-market hours on Thursday.

For the third quarter, Tesla reported a revenue of $2.98 billion, up 30 percent year over year, and beating Thomson Reuters analysts’ estimates of $2.95 billion. Tesla reported an EPS loss of $-2.92, falling short of Thomson Reuters analysts’ estimates of $-2.29.

Tesla stated that within the quarter, the automotive company delivered its 250,000th Tesla model, as the fleet now is 100 times larger than it was nearly five years ago, but that didn’t seem to impress investors. Automotive revenue grew 10 percent year over year.

The Model 3 is Tesla’s primary growth factor, but the company had not been able deliver what investors wanted. In the third quarter, Tesla deployed only 222 Model 3, which is still over  80 percent lower than what Tesla had expected to deliver.

“While we continue to make significant progress each week in fixing Model 3 bottlenecks, the nature of manufacturing challenges during a ramp such as this makes it difficult to predict exactly how long it will take for all bottlenecks to be cleared or when new ones will appear.” stated Tesla.

Based on the current position, Tesla expects to achieve a production rate of 5,000 Model 3 vehicles per week towards the end of the first quarter in 2018. The company states that it’ll provide an update within the first week of January on the outlook for Model 3 vehicles.

Although the Model 3 production had fallen short, the Model S and X delivered strong results. Tesla delivered 25,915 Model S and Model X vehicles, as whole, deliveries for the two models grew by 18 percent globally quarter over quarter and 4.5 percent year over year.

The delay in Model 3 production is not likely to dampen demand for the vehicle, said Jessica Caldwell, executive director of industry analysis for Edmunds.

For Tesla’s outlook, the company expects that Model S and Model X are on pace for about 100,000 deliveries in 2017, an increase of 30 percent year over year. But Tesla plans to produce 10 percent less Model S and Model X vehicles in the fourth quarter due to the reallocation of workforce into the Model 3 production.

Tesla expects non-GAAP automotive gross margin to decline about 15 percent in the fourth quarter, but begin to recover by the first quarter of the next fiscal year. Gross profits is expected to grow more than operating costs in the fourth quarter compared to the third quarter.

Tesla will also reveal its electric Semi on November 16.

Analysts and investors are now expressing doubts about Elon Musk, CEO of Tesla, and how the company keeps overpromising its investors as well as communication problems.

Now, firms such as Goldman Sachs and JPMorgan have now slashed their price targets by $5-$10 after Tesla reported its worst loss. While Goldman Sachs even changed its rating to sell for Tesla.

“Tesla needs to slow down and more narrowly focus its vision and come up for a breath of fresh air,” Cowen and Co analysts said in a note. “Elon Musk needs to stop over promising and under delivering.”

But some analysts remain encouraged because how Tesla was able to provide in detail about the issues the company faced and why they happened, showing analysts that Tesla is confident in being able to fix its issues.

The consensus seems to be disappointed in Tesla and its poor quarterly performance, and with the fourth quarter also expected to decrease in gross margin, investors should be more cautious.

Tesla shares are now up 60 percent year over year.

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