Tesla (TSLA) China Sales Might Help But Option IV Skew Suggest Slightly Bearish

I would think we need to consider investor sentiment from this event and also TSLA potential headwinds like inability to deliver on cost reduction and failure to rapidly expand capacity.

Not forgetting the overall slowdown in the global economy and discretionary spending would also affect the spending on automotive.

Market is expecting earnings of 59 cents per share for Tesla's third quarter, down 12.1% from the year-ago period. Revenue is expected to land at $25.3 billion (+14.7% YoY).

Can TSLA’s third-quarter earnings event shift investor sentiment?

Rather than adding momentum to the stock's recent rise, the robotaxi unveiling proved a “sell the news” event that some analysts predicted as shares plunged over 7%.

With the Q3 delivery numbers, it does not look so bad, but the inability to expand its production would be a concern. So maybe what we can expect is how Tesla is planning to expand its capacity as the China region market demand is recovering, but can Tesla met the demand?

Tesla received $21.75 billion in revenue from its China operations in 2023. That’s about 22.5% of the company’s total revenue. In the fourth quarter alone,

Tesla vehicle insurance registrations in China in early October jumped sequentially, marking the company's third best weekly result in 2024 and propelling registration totals slightly above last year's total. Can these translate to better profits from the China region?

Tesla delivered 63,456 vehicles domestically in China while exporting 23,241 China-made vehicles to foreign markets during August. The U.S. EV giant's domestic unit sales grew more than 37% vs. the 46,227 sales in July, but are still down around 2% compared to the 64,694 total from August 2023.

Through the first eight months of 2024, Tesla China has sold 587,437 vehicles, down 6% compared to the same time frame in 2023. However, in the January-August period, Tesla has sold 388,000 vehicles in China, which is down less than 1% from those eight months in 2023.

Tesla China is benefiting from continued five-year, zero-interest loans to buyers, as well as increased government subsidies for EVs. These are currently running through the end of September.

So we might see the China sales helping to contribute better to the overall revenue.

Based on 35 Wall Street analysts offering 12 month price targets for Tesla in the last 3 months. The average price target is $207.83 with a high forecast of $310.00 and a low forecast of $24.86. The average price target represents a -5.04% change from the last price of $218.85.

I would think that Tesla would still face some consolidation or selling pressure before its earnings result.

The options market overestimated TSLA stocks earnings move 25% of the time in the last 12 quarters. The predicted move after earnings announcement was ±7.7% on average vs an average of the actual earnings moves of 9.2% (in absolute terms). This shows that TSLA tended to be more volatile than the options market predicted for the earnings stock price reaction.

The implied volatility skew shows the market's bias for pricing in volatility risk to the option premium of downside puts and upside calls.

If the implied volatility for downside puts is increasing relative to upside calls, this suggests the market is pricing in a larger fear to a downside move.

The current skew indicator suggest slightly bearish signal.

As seen from the option IV skew, we are also seeing technical indicator suggesting fast bearish crossover, and this might show that investors confidence is not returning, though the china registration number for the third quarter might suggest a better revenue contributions.

I think the important thing is whether Tesla can continue to work on improving the inability to deliver and also to expand its production capacity.

If we looked at the MACD and MTF for the stock price move, we can see that Tesla is going through a downside movement on the MACD, and there is a potential MACD bearish crossover.

Tesla is trading between the short-term and long-term MA and MTF suggest a neutral signal, though we might experience a downward trend.

Unless we see a surprise earnings result or outlook from Tesla, we might not see much movement from Tesla. I am holding back to buy Tesla, wll watch the price action first.

Tesla revenue might show quite normal growth, but the concerns of its delivery of robotaxi and also the expenses on developing that, would eat into its profitability.

So we might want to focus on the earnings result to look at how the revenue from different regions come in, and whether there is any significant increase in its operating expenses.

That should give us a clue whether Tesla need to raise funds to expand its capacity.

Appreciate if you could share your thoughts in the comment section whether you think Tesla revenue should come in all right but the EPS might suffer and also the outlook for robotaxi availability remain a concern.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.