“Tesla Could Be Worth More Than Apple And Saudi Aramco Combined” As Q3 Revenue Target Misses

Key Takeaways

• Tesla missed their Q3 revenue target, bringing in $21.45 billion against the expected $22 billion.
• This was mainly as a result of logistical challenges which saw 343,830 vehicles delivered compared to the 359,000 which had been planned.
• Elon Musk was undeterred, saying that he believes Tesla can become worth more than Apple and Saudi Aramco combined.

Tesla have announced their Q3 numbers and, unsurprisingly, the most noteworthy aspect to the results has been comments from Elon Musk.

The company’s revenue came in slightly below analysis estimates at $21.45 billion, below the $22 billion that had been expected. The miss has been largely attributed to a slowdown in deliveries, with finished cars unable to be shipped to their customers’ final destination.

Despite the miss on revenue Tesla did beat expectations when it came to earnings. Per-share figures hit $1.05 which was higher than the $0.99 that had been expected.

Regardless, Tesla stock loves a bit of volatility and it was down over 6% in after market trading.

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Tesla’s Q3 numbers

In the usual quirks of Wall Street, the Tesla stock price has moved in relation to the expectations rather than the company’s performance being positive or negative. Taken without expectations, the numbers year on year are really very good.

Total revenue is up 56% year on year with earnings per share up 98% compared to Q3 2021. Capital expenditure has remained effectively flat and free cash flow is up 148%. The operating margin has also improved from 14.6% this time last year to 17.2% in Q3 2022.

This is despite the impact foregin exchange issues stemming from a strong US dollar, which Tesla estimates has impacted their bottom line by around $250 million.

Musk brushes off concerns over demand

One of the key areas of scrutiny has been the reduction in delivery numbers of Tesla vehicles. Around a month ago the company announced that the deliveries for Q3 had missed their objective, sending off 343,830 vehicles against an expectation of 359,000.

Wall Street analysts were concerned that this could mean there had been some softening in demand due to the ongoing economic uncertainty, high costs of living and potential of a pending recession.

The thinking behind this was that Tesla was building cars but weren’t actually selling enough of them to deliver the number that they had planned.

Tesla were eager to point out that this isn’t the case. They stated in a press release that the reduction in deliveries was purely down to logistical challenges. “As our production volume continues to grow,” he said, “it is becoming increasingly challenging to secure vehicle transportation capacity and a reasonable cost during these peak logistics weeks.”

Musk spoke further to this issue on the earnings call to shareholders, stating that “I can’t emphasize enough that we have excellent demand and we expect to sell every car we can make as in the future as we can see.”

No mincing words there.

Challenges on the horizon

That’s not to say the future is without its challenges. A strong US dollar is likely to continue to be an issue as it is for all US companies operating globally. With the US dollar gaining against most other currencies, Tesla’s profits from overseas sales are significantly reduced.

For example, a Tesla sold in the UK for £70,000 at the end of 2021 would have generated gross revenue of around $97,000 once converted back to US dollars. Now, that same £70,000 only equates to USD$78,400.

That’s a major difference and it’s a similar story across many other parts of the world.

The currency issue comes on top of the general economic one, which is also a concern in the US. With lackluster economic growth figures and the Fed determined to raise rates to bring down inflation, there are serious headwinds for consumers.

With less cash in their back pockets, car buyers may be looking to cheaper options. Tesla operates in the premium end of the electric vehicle market, which has come a long way in recent years.

Up until recently there were very few affordable options in the space, whereas now drivers have a much wider range of brands and price points to choose from.

Will Tesla become the most valuable company ever?

The question was posed to Elon Musk on the shareholder call and he gave a very Elon Musk answer.

“Tesla can far exceed Apple’s current market cap” he said, “I can see a potential path for Tesla to be worth more than Apple and Saudi Aramco combined. Doesn’t mean it will happen or it will be easy. But for the first time I can see a way for Tesla to be roughly twice the value of Saudi Aramco.”

For some context, Tesla’s current market cap of $690 billion is already larger than Toyota, Porsche, Volkswagen, Mercedes Benz, BMW and General Motors, Ford, Ferrari, Honda and Hyundai combined.

Despite this, it is still dwarfed by Apple which has a market cap of $2.3 trillion and Saudi Aramco which is just under $2.1 trillion.

That’s a very big call from a guy who’s known for making very big calls.

What’s more surprising about that statement is that Musk is excluding potential sales of the Optimus robot which was demonstrated at the recent Tesla AI Day event.

Tesla stock buyback looking likely for next year

There has been speculation regarding a stock buyback for a while, with Musk stating on the call the Tesla board “generally believes a buyback makes sense” and that it was likely that a buyback of between $5 – $10 billion would go ahead next year.

A share buyback is an alternative way to return cash to shareholders. It sees a company use the cash it has on hand to purchase its own shares to reduce the number on issue. While it doesn’t hand cash directly to shareholders like a dividend, broadly speaking it adds further value to their holdings.

Simply put, by taking some stock out of circulation, it makes the remaining stock more valuable, all things being equal. It can improve per-share financial metrics such as earnings per share, as the same amount of profit is now spread across fewer shares. Over time it can help to boost a company stock price.

Companies need to be wary though, because it reduces their cash on hand. Less cash means less flexibility and a smaller buffer during lean times. This is something to be particularly mindful of with a company like Tesla, which has been close to bankruptcy really not that long ago.

What Tesla’s numbers mean for investors

In the short term, the revenue miss has hit the Tesla stock price and we’re likely to continue to see volatility. The stock has come under significant pressure this year, as has much of the market, and is down 44% since the start of 2022.

The Q3 announcement doesn’t really change any of the fundamentals for the company. It appears to be business as usual, and there’s been nothing announced that suggests a major change in revenue or profitability in the near future.

That said, Tesla is still a company with a lot of inherent risk. With a volatile CEO at the helm who is likely to be even more preoccupied with other objectives given the pending purchase of Twitter, anything can happen.

The prospects of a slowing economy could also put a damper on future prospects, particularly when combined with ongoing logistical issues and foreign currency complications.

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