By Akash Sriram
(Reuters) - Tesla (NASDAQ:TSLA)'s profitability and deliveries will be on top of investors' minds when the world's most valuable automaker reports results on Wednesday, days after sharp price cuts and announcement of a production pause at the Berlin factory.
Falling prices of battery materials are expected to let Tesla show a slight rise in profit margin from the previous quarter.
But it will be down sharply from a year ago, and pressure is rising after price cuts in Asia and Europe and rising costs from ramping up Cybertruck production.
Chief Executive Elon Musk has signaled he wanted more control, raising questions among governance experts and retail investors.
Here are the top points investors and analysts have in mind:
PRICING, DEMAND
Tesla slashed prices of its most popular vehicle, the Model Y, in Europe and China this month, stepping up a price war it ignited more than a year ago. It has cut price of the Model Y, its most popular vehicle, by as much as 26.5% in the past year in the United States.
Borrowing costs for customers are high and less expensive U.S. Model 3 versions lost $7,500 tax credit over battery materials sourcing.
Chief Executive Elon Musk previously blamed high borrowing costs for hurting EV demand. As interest rates are expected to ease, he will be under pressure to say where prices and demand are headed.
SUPPLY
The price cuts came days after Tesla said it will suspend most production at its German factory from Jan. 29 to Feb. 11 due to a lack of components as shipping routes had to be adjusted because of attacks on vessels in the Red Sea (NYSE:SE).
What specifically stopped production is an open question. The nearly two-week long production halt in Europe comes as Tesla faces increasing competition from legacy automakers Volkswagen (ETR:VOWG_p) and BMW as well as Chinese EV makers BYD, Xpeng (NYSE:XPEV) and Nio.
Wall Street also expects Tesla to set a deliveries target for the year, which analysts predict to be 2.19 million, according to Visible Alpha. That is up about 21% from 2023 and well below the long-term target of 50% that Musk set about three years ago.
"They had decent deliveries and we want to see the production numbers stay up and the margins continue to hold in. I think that if we see any weakness in those things, it's going to make people think, you know, what's the rest of the year going to look like?" said Thomas Martin, senior portfolio manager at shareholder Globalt Investments.
MARGINS
Automotive gross margin is expected to edge up to 17.7% in the fourth quarter from 17.3% in the prior quarter and down from 25.1% a year ago, according to nine analysts polled by Visible Alpha. The short-term bump is partly due to falling prices for Lithium, Cobalt and Nickel used in EV batteries.
"Lower commodity prices are helping, but they (Tesla) are also now passing it through to customers by cutting prices. If you're in a competitive market, you're going to just have to pass it through to the customer" said Ivana Delevska, Chief Investment Officer at Spear Invest.
Costs related to the production ramp up of the stainless steel paneled Cybertruck electric pickup truck will pressure margins as well.
NEXT GENERATION
The timeline for the next generation of vehicles was the top question submitted by investors on a Tesla-sponsored forum for individual investors, as of late Friday.
MUSK PAY AND CONTROL
The second most popular question was whether investors should be concerned after Musk recently tweeted that he would be uncomfortable growing the automaker to be a leader in artificial intelligence if he did not have at least 25% voting control.
Musk's previous $56 billion pay package made him one of the world's richest people and is under judicial review.
The idea of pursuing AI outside of Tesla raised questions about Musk's duty to shareholders.