Tesla, Inc. (NASDAQ:TSLA) demonstrated significant financial and operational progress in Q3 2023, marked by an increase in revenue mainly attributed to increased vehicle shipments and expansion in various business segments. However, this increase was moderate with a decrease in the average selling price. The company’s operating income declined, impacted by lower selling prices, increased operating expenses due to investments in Cybertruck and AI developments, and costs related to factory improvements and production adjustments. Despite these challenges, Tesla’s financial health remained buoyant, improving its liquidity position and highlighting a strong balance sheet and cash reserves.
This article extends mine previous discussion examining Tesla’s financial health in Q3 2023 and conducting technical analysis to identify investment opportunities. The analysis shows that Tesla has developed a marked upward trend in prices, suggesting a possible upward trajectory in value of shares.
Revenue growth amid market challenges
Tesla announced solid revenue growth, up 9% year over year to $23.35 billion. This growth was mainly driven by increased vehicle shipments and expansion into other business segments of the company. However, the revenue figures were somewhat affected by a year-over-year decrease in the average selling price. As for profitability, Tesla saw a year-over-year decline in operating income, falling to $1.764 billion in the third quarter and leading to an operating margin of 7.6%. The reduction in profitability was impacted by several factors, including a decrease in average selling price and an increase in operating expenses driven by significant investments in Cybertruck, AI developments and R&D initiatives. Costs associated with ramping up production and downtime related to plant upgrades also contributed to this decline in profitability.
The chart below illustrates Tesla’s quarterly revenue and net income, revealing an upward trend despite a marked drop in profitability in the third quarter.
Tesla has cut the prices of its vehicles, aiming to expand its market share, in an effort to maintain its advantage in the electric vehicle market. This strategy serves consumers more concerned with monthly payments than upfront cost, especially in the face of rising interest rates. Although this approach has fueled Tesla’s growth, with a 27% increase in deliveries in the third quarter, it has also reduced its gross profit margin to 17.89%.
Despite the reduced profit margin, Tesla’s liquidity improved in the third quarter, with quarter-end cash, cash equivalents and investments rising $3.0 billion sequentially to $26.1 billion. This was driven by financing activities that generated $2.3 billion and free cash flow of $0.8 billion, indicating a solid company BALANCE and cash position.
Additionally, Tesla significantly upgraded its production lines at several factories, leading to a momentary drop in production levels. Total production for Q3 2023 was $430.39 million compared to $479.7 million in Q2 2023. However, the company effectively improved its delivery pace during the quarter, noting that September shipments accounted for about 40% of total of the quarter, marking a reduction from the previous 65% of the year for the same period.
In the US, pilot production of the Cybertruck began at Tesla’s Gigafactory in Texas, with the company preparing for a steady ramp-up of Model Y production. Efforts to optimize the supply chain for cost-effectiveness are in progress. Production of dense 4680 battery cells is ongoing, with further scaling of cathode production and lithium refining capabilities at the site.
Tesla’s energy storage sector experienced a remarkable 90% year-over-year increase in deployments, reaching an all-time high of 4.0 GWh in the third quarter. This increase is attributed to the progressive growth of the Lathrop Megafactory in California, aiming for a large capacity of 40 GWh after the completion of the second phase of expansion. On the other hand, the solar division faced headwinds, with deployment falling steadily and year-over-year to 49 MW, impacted by rising interest rates and net metering in California.
Tesla is on track to ramp up production, aiming to exceed its long-term growth target of 50% CAGR with expectations to produce around 1.8 million vehicles by 2023. The company possesses significant liquidity to support product development, expansion of capacities and other financial commitments, ensuring an elastic balance.
Tesla’s resilience in the face of market challenges is evident from significant revenue growth and strategic pricing adjustments to capture a larger share of the electric vehicle market. The company’s commitment to innovation and efficiency, particularly in manufacturing and AI, has enabled it to sustain growth and improve liquidity despite pressures on profitability and average selling price. With a strong balance sheet, a focus on scaling production and Cybertruck deliveriesTesla is well positioned to navigate the evolving automotive landscape and continue its growth trajectory.
Decoding the Bullish Price Structure
The previous article showed the considerable volatility of the market using annual and quarterly charts. Shares of Tesla experienced a tremendous rally, escalating by 3412.17% from a 2019 low of $11.80 to a record high of $414.50 in 2021. This rapid price growth over three years showed considerable volatility , leading to an apparent price correction, with the stock hitting a low of $101.81 in 2023. This price correction marked support and resulted in a strong price recovery, as seen by the bullish hammer pattern in quarterly chart. The strong bounce back from $101.81 created a distinctive bearish pattern, signaling potential bullish momentum in the market. The critical support level at $215 was also the strategic entry point for long-term investors.
Tesla’s future trajectory
Despite the constant market fluctuations, Tesla shares have maintained a strong upward trend. The monthly chart below shows significant price movements, with the red trend line marking a critical moment for possible future price increases. In particular, the bullish hammer candle of the January 2023 monthly chart signals a fundamental low and predicts a continued upward trajectory. The maintenance of the RSI above the mid-50 mark further reinforces this positive outlook.
The weekly chart highlights a descending wedge pattern, reinforcing the bullish sentiment discussed earlier. Consistent stock fluctuations within this pattern support a bullish forecast. The previously discussed key support level of $215 has shown strength, with the stock briefly dipping to $191.25 before turning back, forming a bullish hammer on the weekly chart. This sharp decline and subsequent recovery has triggered a bullish flag pattern, another bullish signal. The existence of the bull flag inside the descending wedge pattern suggests a preparation of the stock price to break the $300 mark, triggering another significant rally.
This bull flag pattern is also visible on the short-term daily chart below. It developed after the formation of an inverted head and shoulders pattern, with the head at $101.81 and the shoulders at $166.18 and $152.37. The neck of this pattern, located at $215, has been decisively broken, and a recent retest of $215 consolidates the expectation of a continued rise. Additionally, the appearance of a bullish hammer candlestick on the daily chart reinforces the likelihood of an exit from the bull flag pattern.
Based on the above discussion, investors may consider increasing long positions in anticipation of a significant rally following a break above the $300 mark.
The strategic move to lower prices, targeting a larger share of the competitive electric vehicle market, has reduced operating income to $1.764 billion and a lower operating margin of 7.6%. This scenario, coupled with increased operating expenses from investments in Cybertruck, AI, and R&D and costs related to factory upgrades, poses a significant risk to Tesla’s profitability. The start of Cybertruck production and increased production of 4680 batteries are positive steps, but carry significant financial and operational risks, including potential delays and increased costs. Additionally, challenges in the solar share, including a drop in deployment to 49 MW, reflect broader issues in renewable energy markets.
The company’s aggressive growth target to produce around 1.8 million vehicles by 2023, alongside large-scale investments in product development and capacity expansion, requires careful financial management. While Tesla’s commitment to innovation and market dominance is clear, the risks inherent in these ambitious plans, coupled with external economic factors such as interest rates and market competition, could affect financial stability and stock performance. in the future.
From a technical point of view, the stock exhibits significant volatility, evidenced by significant price swings in both directions. If the stock closes below $150 for the month, it would undermine the short-term positive trend, suggesting a possible further decline in the market.
In conclusion, Tesla showed impressive resilience and adaptability in the face of market challenges during the third quarter of 2023. The company increased revenue, mainly driven by increased vehicle deliveries and expansion in various segments. However, this was mitigated by a decline in average selling price and a decline in operating income, impacted by investments in Cybertruck, AI developments and increased operational expenses.
Despite these challenges, Tesla has maintained a strong financial position with improved liquidity and strong cash reserves. The company’s strategic pricing adjustments and focus on innovation and efficiency have supported growth and positioned it to capture a larger share of the electric vehicle market.
From a technical analysis perspective, Tesla shares demonstrate a marked uptrend, indicating a possible upward trajectory in the stock’s value. Tesla shares have consistently shown a strong upward trend despite market volatility. The falling wedge and bull flag patterns indicate strong momentum in price. If the stock breaks above the $300 mark, it is likely to confirm the existing bullish price structure, potentially leading to a significant price increase. Investors may consider taking long positions in shares of Tesla, Inc. at current levels in anticipation of price increases.