Prior to its third-quarter earnings report, electric vehicle (EV) company Tesla (TSLA -1.11%) released vehicle production metrics. Tesla produced significantly fewer vehicles compared to the second quarter, and it also missed Wall Street estimates by a wide margin. Nonetheless, the company still has a lot of positive momentum, and now could be a great opportunity to scoop up some shares.
What happened?
Earlier this week, Tesla published its production and delivery figures for the third quarter. The table below illustrates the company's production figures for Q3 2023 compared to the same period last year:
| Period | Q3 2023 | Q3 2022 | % Change |
|---|---|---|---|
| Production | 430,488 | 365,923 | 18% |
| Delivery | 435,059 | 343,830 | 27% |
Source: Investor Relations Press Releases.
On the surface, these results look respectable. The issue that comes into play is when you consider Wall Street's expectations as well as Tesla's guidance. The consensus estimate among Wall Street analysts was that Tesla would deliver approximately 460,000 cars in Q3. Unfortunately, the company reported well below that benchmark.
Through the first nine months of the year, Tesla has delivered slightly more than 1.3 million vehicles. However, within the Q3 vehicle stats press release, the company doubled down on its prior volume guidance of 1.8 million cars for the full year 2023. The basic math implies that Tesla will need to deliver well over 450,000 vehicles to meet its target. This is not going to be an easy hill to climb, especially considering the intense competition in the EV space, married with macroeconomic forces such as inflation and high borrowing costs, and the impacts they have on Tesla's business.
Image source: Getty Images.
Should investors be concerned?
The results from Tesla may come across as initially uninspiring, if not troubling. However, as is often the case, there is more than meets the eye. During the company's Q2 earnings call, Musk signaled that Q3 vehicle production would likely be lower compared to the second quarter due to shutdowns in some of its factories. Of note, these shutdowns were not a result of any particular issue in the labor force or COVID-19-related issues in other parts of the world, such as Asia. Rather, Musk pointed to upgrades in some of its factories as the reason for temporary shutdowns.
Given the prior commentary regarding factory shutdowns, long-term investors should have been expecting more mundane volume in Q3. And while this only raises the bar higher for the fourth quarter, I am actually encouraged that management reaffirmed its guidance. To me, this undermines how confident Musk and his team are in their ability to execute.
Zoom out: the stock looks attractive
TSLA P/E Ratio data by YCharts.
The chart above shows the percentage change in the price-to-earnings ratio for Tesla over a three-year period. It's easy to see that the P/E multiple is trading well off its three-year highs. Considering how much has changed over the last few years, this is intriguing.
Investors should be encouraged by some new tailwinds for the company. Tesla has the potential to be far more than an automobile company. Instead, given its technological advancements in batteries and self-driving capabilities, Tesla could be an under-the-radar beneficiary of artificial intelligence (AI). Big Tech enterprises such as Alphabet, Microsoft, and Amazon are dominating headlines as each competes in areas such as generative AI and machine learning. But make no mistake about it: Tesla should not be left out of AI discussions.
From this standpoint, it's hard to imagine why Tesla stock is trading at such a discount to historical levels. After all, the company's vehicle production has increased dramatically over the last few years. Moreover, despite margin pressure due to the effects inflation has on demand (consumer spending), coupled with aggressive price-cutting strategies and rising materials and labor costs, Tesla's operation is still light-years ahead of competitors such as Rivian, Polestar, and legacy automakers looking to make a foray into EVs.
Long-term investors may want to take Tesla's Q3 production results in stride. While the company's actual financials will likely appear muted, the long-term picture still looks intact. Moreover, as AI is in its early innings, investors are yet to see the full potential it can have on Tesla's business.
