Tesla’s Revenue Lagged Behind Cost Increases

In the business playbook, bolstering profit margins typically boils down to two core strategies: expanding revenue streams and meticulously managing costs. Ideally, a company should pursue both avenues simultaneously, as unchecked expense growth can easily negate the benefits of increased sales.

This is precisely the conundrum Tesla (TSLA) faced in the third quarter. The electric vehicle giant, helmed by Elon Musk, saw a 12% year-over-year increase in revenue, marking the first such rise in three quarters. However, this seemingly positive trajectory was overshadowed by a significant 37% plunge in net income compared to the same period last year.

The primary drivers behind this earnings erosion include, but are not limited to, strategic price cuts implemented to maintain competitiveness against burgeoning Chinese EV manufacturers who are fiercely vying for market share. Furthermore, Tesla cited a substantial 50% surge in operating expenses, attributed in part to investments in artificial intelligence and various other research and development initiatives. This spike in spending raises questions about the immediate ROI of these investments and their potential impact on future profitability.

The market reaction to Tesla’s after-hours earnings report was decidedly lukewarm, with shares dipping 3.8% in extended trading. This performance follows disappointing earnings reports from Netflix (NFLX) and Texas Instruments (TXN) earlier in the week, which sent their respective shares tumbling 10% and 5.6% during Wednesday’s trading session. Analysts are concerned that Tesla’s aggressive pricing strategy, while aimed at maintaining market share, could be unsustainable in the long run without corresponding improvements in production efficiencies and cost management.

These individual stock declines contributed to a broader market downturn, with major U.S. indexes experiencing declines, albeit managing to claw back some losses by the close of the session. The S&P 500 and Nasdaq Composite are both facing potential losses for the month of October, underscoring the current market volatility and investor caution.

With only a handful of trading days remaining in October, the market’s trajectory hinges on upcoming earnings reports from tech heavyweights such as Alphabet (GOOGL), Apple (AAPL), Meta (META), and Microsoft (MSFT). These reports are poised to be pivotal in shaping investor sentiment and potentially reversing the current downward trend. The market is especially keen to hear updates on these companies’ AI strategies and their impact on future growth prospects.

Smaller Altcoins Bear the Brunt of Recent Crypto Market Carnage

The cryptocurrency market recently endured a significant correction, with over 1.6 million traders collectively losing $19.37 billion in leveraged positions within a 24-hour period commencing on Friday, October 10th.

More than a week after this event, the impact is disproportionately affecting smaller cryptocurrencies. While Bitcoin (BTC.CM=) is trading approximately 11% below its October 10th highs, altcoins like XRP, Solana, Dogecoin, and BNB are trading between 15% and 24% below their pre-liquidation prices. This disparity highlights the increased volatility and risk associated with less established cryptocurrencies during periods of market stress.

— Liz Napolitano

Correction: This story has been updated to correct the spelling of Texas Instruments.