BYD to report higher Q3 profit margin than Tesla as Model 3 and Model Y price cuts bite earnings

The analyst consensus is for Tesla to log a significant drop in it gross profit margin when it reports its Q3 earnings later today. Tesla's profitability drop is expected to be rather significant, from 29% a year ago, to just 18% in the third quarter of the year. At 74 cents per share, Tesla's profits will be down 30% year-on-year, feeling the pinch of the price war that it started at the beginning of the year.

Just last week, Tesla cut the prices of its bestselling Model 3 and Model Y again without offsetting those cuts with enough production cost savings just yet. The move will further squeeze the gross margin profitability metric that investors are eagerly awaiting to gauge where Tesla's stock price may be heading to.

Tesla's main global competitor BYD, however, managed to increase its vertical integration as an EV and battery maker and at the same time sell 17% more cars compared to Q2. In its earnings preview, BYD says that it managed to reign in expenses further, helped partially by the drop in battery-grade lithium prices, and partially by the production scale increase that gave it a bargaining power with suppliers.

Thus, BYD is expected to report higher margins than in Q2 when it netted 18.73%, and may very well beat Tesla to the gross margin rate punch. Tesla is still expected to report higher Q3 earnings than BYD, whose top-range estimate is US$1.44 billion, or about US$1,440 per vehicle. Tesla's enviable profit rate of up to $10,000 per car may be a thing of the past, though.

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