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The Motley Fool: Why Tesla Stock Is Falling Today

Tesla (TSLA 0.66%) stock crashed on Thursday and was trading 9.1% lower as of 12:15 p.m. ET after CEO Elon Musk tempered expectations for the long-awaited Cybertruck right after the company reported a sharp drop in profits for the third quarter.

Disappointing Q3 numbers and a note of caution

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Parkev Tatevosian, CFA

Tesla released its third-quarter numbers and hosted its earnings conference call Wednesday after the close. Here are some key numbers from the electric vehicle (EV) giant's quarter that investors must know. (All changes are year over year.)

  • Production and deliveries: Up 18% and 27%, respectively, driven by increases in the Model 3 and Model Y.
  • Total revenue: Up 9% to $23.4 billion, with automotive segment revenue growing 5%.
  • Gross margin: Down to 17.9% from 25.1% in Q3 2022.
  • Operating income: Down 52% to roughly $1.8 billion.
  • Net income: Down 44% to $1.8 billion.
  • Cash, cash equivalents, and investments: Up 24% to $26 billion.

Tesla continues to enjoy strong demand for its EVs, and is growing its revenue steadily despite cutting its prices several times this year, but the company's latest report is a reminder that building EVs is a costly business. While factory upgrades drove Tesla's production costs higher, the EV maker also incurred large expenses on research and development (R&D), its artificial intelligence (AI) projects, and the Cybertruck.

During the Q3 earnings conference call, management also noted that high interest rates are posing a challenge to the company. Although Tesla is "adjusting" the prices of its vehicles monthly, it is cutting costs simultaneously. However, the lags between those moves have hurt the company's margins.

As for the Cybertruck, Musk admitted that building prototypes is easy, but production isn't, and said that Tesla will have to work really hard to "reach volume production and be cash flow positive at a price that people can afford." Musk said it could be 12 to 18 months before the all-electric truck starts contributing meaningfully to Tesla's cash flows.

Why Tesla stock could remain under pressure

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Tesla remains undeterred on its growth plans. It expects to grow production rapidly to reach 1.8 million vehicles this year versus 1.37 million vehicles last year. The company is also prioritizing cost reduction, but expects to continue investing in R&D, and it has ample liquidity with which to do so. Tesla also remains on track to deliver its first Cybertruck later this year.

Yet with Musk sounding the warning bells on both the economy and the Cybertruck, and with Tesla's gross margins slipping, the EV stock could continue to feel the heat in the near term.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.


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