220519 SemiconM 220519 SemiconM 220519 SemiconM

Earnings: ASML is mixed on China risk; can Tesla sustain gross margin

Picture of Peter Garnry
Peter Garnry

Head of Saxo Strats

Summary:  ASML Q1 results were better than expected and even Q2 revenue guidance was above estimates, but regardless of this investors pushing ASML shares down by 3% as comments about mixed demand signals and the risks related to China seem to be the focus. However, the short-term noise around these risks should be ignored by investors as the long-term demand picture looks strong. Tesla is the next important earnings release expected to report tonight after the close. Investors will be focusing on Tesla's gross margin target of 20% in the light of recent price cuts and then of course the 2mn target for 2023 deliveries.

Investors should ignore short-term noise in ASML

ASML, which is the world’s largest semiconductor manufacturer of advanced lithography machines, has reported better than expected Q1 2023 results with both revenue and gross margin exceeding estimates. Q2 revenue guidance of €6.5-7bn is coming out above estimates of €6.4bn and the ASML is reiterating their long-term goals of revenue around €44-60bn by 2030 with a gross margin between 56-60% up from revenue of €21.2bn in FY22 and gross margin of 50.5%.

The long-term goals are set based on their reading that their product portfolio is well aligned with customers’ roadmaps of new products over the coming 8 years, and then also the megatrend of more computer chips needed for everything such as electronic consumer devices, electric vehicles, data centers for storage, AI computing, and general automation for manufacturing and the services sector. In addition, the war in Ukraine and the expected doubling of military spending in Europe on different military equipment will also increase demand significantly for computer chips going forward.

However, the market is a bit more lukewarm on ASML’s Q1 results with the share price down 3%. It seems investors are focusing on two risks in ASML’s communication. The first risk is related to this sentence in the press release “We continue to see mixed signals on demand from the different end-market segments as the industry works to bring inventory to more healthy levels”. While this is arguably a risk to revenue it is also a short-term risk and not something that should impact the value of ASML. The second risk is related to China in which the CFO says the company is awaiting the Dutch government’s final decision on whether to follow US demands and begin curbing semiconductor equipment sales to China. The Chinese market is currently 8% of total system sales and 20% of the order backlog.

Source: ASML
ASML share price | Source: Saxo

Tesla cuts prices again ahead of Q1 earnings

The big earnings focus today is naturally Tesla, which remains the most traded stock in the world, and has mustered excitement this year as the carmaker has cut prices multiple times. Tesla even cut prices again yesterday ahead of its Q1 earnings which are released tonight after the US market close. Several sell-side analysts are worried that Tesla’s aggressive price cuts are signalling that it wants to keep demand high so lower inventories again that have been rising for several quarters now. Analysts also worry that Tesla cannot maintain its target of 20% gross margin on its cars unless it increases its factory efficiency. Our estimate is that Tesla will be able to keep margins close to the 20% as lithium carbonate prices are collapsing in China (see below) which is the main input cost for lithium-ion batteries.

Besides the gross margin on its cars investors will focus on Tesla’s demand outlook and will be hoping for a recommitment to the 50% growth in deliveries this year to 2mn cars. Tesla delivered 422,875 cars in Q1 which means that Tesla must deliver 525,700 cars on average in the next three quarters to hit 2mn cars which would equate to around 63% y/y growth rates in deliveries in those three quarters. It is a high bar but lower prices on electric vehicles seem to have increased demand quite a bit across many markets. Europe’s car sales also rose to a 2-year high in the previous month suggesting demand is looking solid. Analysts expect Tesla to report revenue of $23.4bn up 25% y/y and estimates are expecting Q2 revenue of $24.8bn up 47%.



The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.