In the US earnings season, with listed companies releasing their quarterly earnings one after another, all eyes are on the tech giants whose performance may have a significant impact on their own share prices and the entire US stock market.

On July 23rd, after the market closes, Tesla will release its latest financial report.  Each time a company releases its financial report, it may present a potential trading or investment opportunity. But before diving in, investors need to understand how to interpret their financial statements.

What should we consider when reading Tesla's earnings report? How will it affect the stock price movement?

1. Change in Deliveries

For Electric Vehicle (EV) makers, total deliveries or sales may be the most crucial indicator to monitor for several reasons.

Firstly, higher deliveries lead to larger market share and brand impact.

Second, sales boosts revenue. Tesla's stellar earnings growth historically was driven by increases in sales.

Thirdly, higher sales offer better economies of scale, leading to higher profit margins. While the effects of economies of scale were significant during Tesla's early development, now its impact on margin is limited.

So this crucial indicator may move Tesla's share price.

Typically, EV makers release their delivery figures every month, providing insights into sales trends ahead of earnings releases. Check out the Financials tab on moomoo to keep up with Tesla's quarterly deliveries.

As we can see, in Q1 2022, Tesla's quarterly vehicle deliveries growth slowed almost to zero, and in Q2 2022, this indicator experienced its first-ever decline. Its stock price began plummeting in the first quarter of that year.

However, Tesla reported a better-than-expected delivery figure in Q2 2023, and its stock price rallied correspondingly.

Why did Tesla's deliveries fluctuate? It might have a lot to do with its pricing strategy. Before Q4 2021, the EV giant's deliveries surged thanks to its price cuts on all its models and booming demand.

Since Q4 2021, Tesla has been hiking prices due to reasons including rising battery costs, pushing revenue per vehicle from $50,700 to $55,700. This strategy pressured sales volumes, eventually leading to a decrease in units sold.

In Q3 2022, Tesla delivered a record number of cars after price cuts, and its shares jumped from $100 to over $280.

However, in the first quarter of 2024, Tesla's sales fell back into decline, dropping below 400,000 units for the first time since Q4 2022, which led to a significant drop in its stock price. Fortunately, in Q2 2024, Tesla's sales rebounded to 444,000 units, surpassing market expectations. This stock price reacted strongly after the earnings beat, once surging over 20% since July.

2. Change in Profitability

Sales are crucial for Electric Vehicle (EV) makers as they directly affect revenue. However, profitability is the key factor that investors look at when evaluating these companies.

For example, Li Auto is the first among the earliest listed Chinese EV-makers to turn profitable, while NIO and XPeng still struggle financially. This may partly explain why Li Auto shares performed better compared to the others.

How about Tesla? In Tesla's case, its profitability is closely tied to total deliveries and pricing. The company's gross and net margins rose rapidly when its sales surged.

According to Tesla's financial statements on moomoo, from Q1 2019 to Q1 2022, its gross margin rose from 12.5% to almost 30%, with the net margin up from -14.7% to 17.5%.

While Tesla lowered its vehicle prices during this period, the lower battery cost and economies of scale drove profits up.

However, after its deliveries reach a certain scale, Tesla's profitability becomes more dependent on changes in pricing strategy and production costs.

In 2023, Tesla's aggressive price cuts led to a steep decline in profitability. Gross margins, once over 25% in 2022, dipped to approximately 17.6% by Q4 2023, with net profit margins also falling from above 15% to about 8% in Q3 2023.

By Q1 2024, the downward trend in gross margins persisted, dropping to 17.4%, while its net margin also fell to approximately 5.4%.

As we look ahead to Tesla's Q2 2024 earnings report, the profitability figures will likely be a focal point of interest. If the company is unable to halt the declining trend in profitability, its stock price may continue to face downward pressure.

3. Actual Results VS Market Expectations

We should also take into account whether Tesla's actual results meet market expectations. Analysts estimate the earnings of high-profile companies like Tesla. You can find analysts' estimates of Tesla on moomoo.

When reading Tesla's earnings report, we should compare the actual revenue and EPS to analyst estimates.

Revenue estimates are generally more accurate because most of Tesla's revenue comes from selling cars and Tesla releases its quarterly car deliveries ahead of earnings release.

While revenue estimates are generally more accurate due to the predictable nature of Tesla's car sales, EPS may vary considerably from expectations. A higher-than-expected EPS may boost the short-term stock price, while missing expectations might cause it to decline.

Tesla's actual EPS for Q1 2024 came in at $0.34, falling short of the analysts' expectations of $0.42, which impacts short-term stock performance. For the upcoming financial report, we should continue to monitor how the actual EPS compares with the expected figures.

Having read this far, you may now have a deeper understanding of how to interpret Tesla's financial reports. It's noteworthy that the release of earnings reports from prominent companies may present unique trading opportunities for different types of investors.

For instance, if an investor, after analyzing past reports and considering recent developments, believes a company's latest earnings will send positive signals and boost the short-term stock price, they might consider taking a long position. This could involve buying the underlying stock or purchasing call options.

Conversely, if the investor expects the earnings to be unfavorable and potentially pressure the stock price, they might consider taking a short position, either through short selling or buying put options.

If the report's outcome is unclear but volatility is expected, they might use a straddle strategy, buying both calls and puts.

However, investors should carefully assess their risk tolerance, particularly when considering high-risk trades like short selling or options, before making any trading decisions.

Summary

Various critical metrics in Tesla's earnings may impact its stock prices. These include changes in deliveries that measure competitiveness, shifts in pricing strategy and profitability changes that ensure long-term healthy growth, and comparing the company's actual performance against market expectations, which may affect the stock price and market sentiment in the short term.

Remember that all indicators should be considered together, and other factors should also be taken into account when analyzing the earnings report.