Tesla Missed High Sales Expectations. Will Robotaxi Also Disappoint?

Shares of Tesla (TSLA) slid Wednesday after the electric vehicle (EV) maker’s third-quarter deliveries came in slightly below estimates, underscoring the challenges of the EV market and the burden of high expectations.

Tesla delivered 462,890 cars last quarter, a marked improvement over the two prior periods in which deliveries declined on a year-over-year basis. The figures were also just a few hundred vehicles shy of the consensus estimate among analysts, according to FactSet.

Tesla will need to maintain its third-quarter sales growth rate (+6.3%) if it’s going to sell as many cars as it did last year. Failure to do so would mark the carmaker’s first full-year sales decline on record.

Chinese EV Sales Rebound

Tesla faces stiff competition, especially in China, the world’s largest auto market, where local manufacturers enjoy the benefits of lower production costs. Chinese giant BYD (BYDDY) sold a record 417,603 passenger vehicles—both electric and hybrid—in September.

Tesla has attempted to grow its market share by cutting prices in China repeatedly over the last two years and offering Chinese buyers financing and insurance incentives. Tesla’s margins have shrunk in the process. They will be a key focus for investors when the company reports earnings on Oct. 23.

Wedbush analysts, in a note on Wednesday, estimated that promotional activity contributed to relatively strong sales in China last quarter. A slowdown in the U.S. and Europe, however, likely offset that strength.  

‘Whisper Numbers’ Haunt the Magnificent Seven

Wedbush analysts are confident Tesla can hit the target envisioned by analysts. Overall, they said, the deliveries were “a step in the right direction,” even if they did fall short of Wall Street’s whisper numbers, which Wedbush estimated were between 465,000-470,000. 

Wall Street’s high expectations have been a thorn in the side of the market’s favorite tech stocks in recent months. Nvidia (NVDA) shares tanked in late August after its quarterly results topped analysts’ official estimates but missed their off-the-record forecasts. Google-parent Alphabet’s (GOOG; GOOGL) profit also exceeded expectations for last quarter, but the stock tumbled as investors homed in on Youtube advertising revenue, which was slightly below expectations.

High expectations heading into major business announcements are invariably reflected in a company’s share price. Nvidia stock was up 153% from the start of the year before its disappointing August earnings report, while Alphabet was within 5% of its all-time high.

Could Robotaxi Event Be ‘Sell the News’ Event?

Tesla stock rose more than 20% in September as Wall Street looked ahead to this month’s “robotaxi” event and priced in the benefit of lower interest rates. 

Deutsche Bank analysts in a recent note advised being “tactically cautious” on the stock because of hype around next week’s robotaxi event. After months of speculation about what Tesla could unveil—progress on full self-driving software, a lower-cost model, etc.—”the bar seems quite high and [we] could envision a ‘sell the news’ type of market reaction.”

Tesla shares ended down 3.5% at $249.02 Wednesday, putting them back to near where they started 2024.