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

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

Peter Garnry

Chief Investment Strategist

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%.

Latest Market Insights


Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

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

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.