Tesla looking to post best quarterly performance ever in China

With Tesla Inc. possibly looking at its “best quarter ever" in China, Wall Street pros are rushing to increase their outlooks for the electric-vehicle maker’s quarterly sales.

At least four analysts have boosted their estimates for Tesla’s third-quarter delivery numbers, which are due next week. All point to signs that sales are starting to pick up in China, a key area for Tesla and a major market for electric cars globally.

“This China strength comes at a very opportune time for Tesla, helping to offset ongoing weakness in the US and Europe," said Dan Levy, who follows the company for Barclays. Levy now expects deliveries of about 470,000 vehicles in the three months ending in September, up from 462,000 previously.

A healthy delivery figure next week would go a long way in allaying fears about weakening demand amid an industry-wide slowdown and the emergence of competitively priced rivals. Though Tesla investors are mainly focused on the so-called Robotaxi event on Oct. 10, when the EV maker unveils its highly anticipated self-driving technology, doubts about its core business can still weigh on the stock price.

“A beat could drive further strength in the stock into Robotaxi Day, serving as a reminder that at least for now concerns on fundamentals have dissipated," Levy said.

Tesla shares have swung wildly for most of this year and are up just 2% so far, largely sitting out the strong rally that has driven the S&P 500 Index more than 20% over the same time. But they have staged a sharp recovery since early August, climbing about 33%, as investors grow more confident about the economy and the Federal Reserve’s plan to start lowering interest rates.

Tesla’s Chief Executive Officer Elon Musk regularly points to high borrowing costs, which can dampen the demand for big-ticket purchases like cars, as a key contributor to weaker sales. As such, the Fed embarking on an easing cycle, along with the news of a big drive in China to revive its economy, are a potential bonanza for Tesla.

“In China, third-quarter seems likely to be Tesla’s best quarter ever, and although sales in Europe are weak, Cybertruck deliveries are supporting demand in the United States," said Piper Sandler analyst Alexander Potter. The analyst expects deliveries for the period to be around 459,000 vehicles.

RBC Capital Markets’ Tom Narayan expects it to be around 460,000 units, up from 454,000 prior, while Baird’s Ben Kallo models 480,000. UBS analyst Joseph Spak expects the number to be about 470,000.

Wall Street is estimating average deliveries of about 462,000 units, according to data compiled by Bloomberg. Still, most analysts note that investors once the EV sales figures are digested, many investors may quickly look beyond them to the key Robotaxi event.

“The near-term setup for Tesla is attractive in our view as we see deliveries tracking towards meeting or exceeding current consensus," Baird’s Kallo said. But with the Robotaxi unveil scheduled shortly afterward “even an in-line or weaker deliveries number would be viewed by investors as a look through with a significant potential catalyst coming soon after."

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