Tesla's post-Q3 performance to hinge on gross margin, says Piper

Investing.com -- Tesla's stock performance following its upcoming Q3 earnings report will largely depend on its automotive gross margin, according to analysts at Piper Sandler in a note Monday.

The electric vehicle maker, which reports results on Wednesday, has already seen its stock drop around 15% since reaching a peak before its recent robo-taxi event, said Piper Sandler.

"We expect 3Q24 automotive gross margin (excluding regulatory credits) to rise +50bps quarter-over-quarter, to 15.1%," Piper Sandler wrote, though they acknowledged the difficulty in confidently predicting margins.

They add that if Tesla (NASDAQ:TSLA ) meets or exceeds these expectations, the stock could stabilize or even rise modestly. However, if gross margin disappoints, "valuation could continue contracting for several months."

The firm emphasized that, despite their Overweight rating on the stock, near-term sentiment often hinges on automotive gross margin.

Piper Sandler noted that metrics like robo-taxis are still viewed as "distant possibilities," leaving margin as a key driver of Tesla's performance in the immediate future.

Looking beyond Q3, the analysts stressed that investors are seeking reasons to become bullish on Tesla's 2025 and 2026 financial outlook.

"Regardless of the Q3 result, we think a sustainably bullish re-rating may not occur until investors have reasons to boost estimates," they explained.

Potential catalysts for future optimism include the long-anticipated unveiling of the "Model 2," a more affordable Tesla vehicle.

"An even more meaningful catalyst would involve Tesla disclosing take-rates for full self-driving (FSD) software," Piper Sandler added, particularly if accompanied by regulatory approval for FSD in a new market such as China.

While Tesla's long-term growth prospects remain intact, the company's near-term stock movement will likely "hinge on gross margin" and whether the Q3 report gives investors enough confidence to maintain or raise their estimates, concludes Piper Sandler.

Source: Investing.com