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Tesla Reports Earnings Wednesday. Investors Should Prepare for Disappointment.

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EV pioneer Tesla reports first-quarter earnings on Wednesday.

Christian Marquardt/Getty Images

Because


Tesla

is a popular, highflying, high-growth stock, investors want to see earnings “beats” that propel analyst estimates for future quarters even higher. Investors should prepare for disappointment this time around.


Tesla

(ticker: TSLA) will have a mighty hard time meeting analyst estimates for the first quarter of 2022, which are due to be reported after the market close on Wednesday, April 20. The reason is fairly simple: Vehicle deliveries didn’t meet Wall Street’s original estimates, and analysts haven’t moved their earnings estimates since quarterly production numbers came out April 2.

Tesla delivered about 310,000 vehicles in the first quarter of 2022, which was a record and an increase from about 309,000 delivered the previous quarter. But at the start of the year, analysts had expected closer to 325,000 vehicles to be delivered in the first quarter.

The delivery results were affected by Covid. Tesla’s plant near Shanghai had to shut because of a wave of new Covid-19 infections that local officials are struggling to contain.

But even though the quarter’s deliveries came in about 5% to 10% lighter than the Street’s initial expectations, analysts’ first-quarter earnings estimates have remained at about $2.27 a share for three months.

Analysts’ estimate for first-quarter sales—about $17.9 billion—hasn’t budged either.

Now, all hope for an earnings beat isn’t lost for Tesla bulls. The company reported $2.54 a share in adjusted earnings in the fourth quarter of 2021 on deliveries of about 309,000. But raw material inflation is a problem, with batteries growing more expensive during the first three months of the year. A basket of metals that go into electric-vehicle batteries on average cost 73% more in the first quarter compared with the previous period, based on spot prices.

In addition, there is the problem of Covid-19 in China. Tesla’s Shanghai plant is lower cost than its U.S. manufacturing operations. Missing deliveries because of the Shanghai shutdown could also affect profit margins.

Options markets imply Tesla stock will move about 5%, up or down, following earnings. The average move in the shares, up or down, is about 7% following earnings.

Calling how any stock reacts to any earnings report is hard, but based on historical performance, the shares look more likely to have a stronger reaction if Tesla’s earnings don’t meet expectations. Over the past five years, Tesla has beaten estimates 13 times, with the stock rising an average of 0.6% following the beat. Shares dropped an average of 2.5% after the seven misses.

A beat doesn’t guarantee the stock goes up. Tesla has beaten earnings estimates four consecutive quarters, and the stock has only gone up once.

The stock reaction will also depend a lot on what management talks about during the quarterly earnings conference call. The big topics investors will want to hear about include the situation in Shanghai; the production ramp at Tesla’s two new plants in Austin, Texas and Berlin, Germany; the impact of raw material inflation and plans to deal with it; the semiconductor shortage; and, perhaps, an update on future capacity plans.

Coming into the earnings report, Tesla stock is up about 7% since its last earnings report in late January. The

S&P 500
is up about 1% over the same span, while the

Nasdaq Composite
is down about 2%.

Write to Al Root at allen.root@dowjones.com

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