Next up for Elon Musk: Critical Tesla earnings and outlook

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Tesla is expected to report record earnings after the bell Wednesday, but it may not be enough to satisfy worried investors.

The company is facing uncertainty over its business following disappointing sales and a series of price cuts.

“I don’t think it matters other than what Q4 means to Q1,” said analyst Gordon Johnson, one of Tesla’s staunchest critics. “What comes next is the instruction.”

Analysts polled by Refinitive forecast fourth-quarter revenue and full-year revenue both topping year-ago levels and hitting records for the company. That’s good news after two quarters in which Tesla’s profits fell short of previous highs.

But on January 2, the company reported disappointing fourth-quarter sales despite price cuts in December. Further price cuts followed in January, leaving the company concerned that demand for its products is falling. US buyers are now paying $44,000 for the base version of the Model 3, down from $3,000 at the end of November.

That made Tesla and its controversial CEO Elon Musk particularly valuable Wednesday, especially after its once-high-flying stock fell 65 percent last year to give any guidance on future sales and profit margins.

So far this year, shares have recovered despite falling 12 percent — the biggest one-day drop in two years — on the first trading day of 2023 in response to a fourth-quarter selloff. Shares closed Tuesday up as much as 17 percent year-to-date.

But Wednesday’s pessimistic guidance for future sales and profits could quickly send stocks reeling. And there are many reasons to worry.

“You take the Band-Aid off and say you’re not going to see 50% sales growth? And how bad are the margins going to be?” said Dan Ives, technology analyst with Wedbush Securities.

Ives recently lowered his own Tesla price from $250 to $175.

In the first half of last year, Tesla insisted that it could still reach its 50% annual sales growth despite the shutdown of its Shanghai factory and most of its Chinese sales due to the Covid-19 pandemic.

It wasn’t until after reporting third-quarter results that the company abandoned its 50% growth target for 2022. But investors weren’t prepared for how much that mark would lose. Fourth quarter sales were only 40% full year growth.

Ives said he thinks the 35% growth target is more realistic given the increased competition Electric vehicles than traditional automobiles. Tesla believes it needs to provide some clarity on profit margins as recent price cuts reduce its expected revenue per vehicle. But Johnson said he thinks Musk and Tesla will continue their tradition of over-promising.

“The idea that Tesla will lead you to anything close to reality is unlikely because Elon Musk is frankly pathological,” Johnson said.

In addition to providing guidance on sales and profit margins, Musk said it was important to reassure investors about non-operating issues that have been a major headwind for Tesla shares in the past year.

Musk spent the first two days of his 2018 federal indictment on Twitter this week saying that Tesla was “guaranteed money” to go private while it was still losing money and facing financial problems.. Although he again defended his testimony on Twitter this week, saying he was confident Saudi investors were prepared to back a deal that never happened, the funding was confirmed to be unsecured.

And most of the news in the past nine months has been about Musk’s $44 billion purchase of Twitter and the sale of nearly $23 billion in Tesla stock to finance that purchase. Some of the sales came after Musk announced on Twitter that he was selling Tesla shares.

“There’s been a lot of noise on Tesla stock, from Twitter to the court case to the stock sale,” Ives said. “Musk Says He Won’t Sell Stocks on Conference Call.”

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