Tesla Motors Inc (NASDAQ:TSLA) will be coming to the market with its first quarter (Q1 2016) earnings result after the closing bell on Wednesday. Tesla has been able to keep investors interested in its stock because the share price made colossal gains to reward early investors and new investors are hopeful that they will make similar gains in the future. However, the financials of the company can provide insights into how soon those future gains might materialize for investors.
Here’s what to expect when Tesla reports earnings tomorrow:
Earnings: The consensus analysts’ estimates as collated by Thomas Reuters posit that Tesla will post adjusted loss of ($0.58) per share. In essence, analysts expect the firm’s losses to widen up from losses of ($0.36) per share that was reported in the same quarter in 2015. Tesla has only reported one profitable quarter on GAAP standards since its IPO in 2010 – a 55% widening in losses doesn’t sound like a great way to start the year.
Revenue: The consensus analysts’ estimate posits that the firm’s revenue will come in at $1.61B. The $1.6B forecast suggests a 45% increase in revenue from the year-ago quarter when it posted revenue of $1.10B. You’ll remember that Tesla’s units sales increased by 48% to 14,820 in the same period last year – the introduction of Model X should have increased unit sales for the firms; hence, a revenue surprise is probable.
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How will the market react?
Tesla Motors (NASDAQ:TSLA) is a darling on Wall Street but the bearish sentiment seems to exert an equal and opposite force on the bullish prospects of the stock. For instance, in the last one year, the stock gained 6.99%; in contrast, NASDAQ Composite was down 3.75%, the S&P 500 was down 1.27%; the Dow Jones was down 0.74%. However, in the year-to-date, the stock is up 0.75%; the S&P 500 is up 1.83% and the Dow Jones is up 2.68% but the NASDAQ Composite is down 3.79%.
Pay attention to these metrics above everything else
Deliveries: Tesla has a problem that most automakers would love to have – the demand for its cars outstrips the supply. However, investors seem to have mollycoddled Tesla enough and they want it to start behaving like an auto firm and ramp up production instead of acting like a tech startup. The rate at which Tesla delivers its cars to meet the demand is an indication of how fast the firm is growing and how soon it could dominate the EV market.
Tesla’s Q1 deliveries are already 1,180 units short of expectations because the Model X is one of the hardest cars to build. The firm plans to deliver 80,000 to 90,000 cars this year as it aims for 500,000 annual deliveries by 2020. If Tesla is not increasing its deliveries at an impressive rate, investors will be worried (and with good reason) about the firm’s ability to reach 500,000 deliveries and obtain positive cash flow.
Model X: The Model X might end up being a flop (that is hard to stomach) even though it is one of the coolest cars ever built. Tesla can’t seem to finish building the SUV (multiple delays in launch attest to this), after building the car; the firm can’t seem to make enough of them; and now, recalls and repair issues suggests that Musk can’t seem to build the Model X sturdy enough. Investors will want to know how well Tesla has dealt with shortages of parts and quality issues plaguing the car.
Model 3: Tesla Motors has successfully made the transition from being a maker of cool toys for the rich to becoming a main player in the general auto market with the unveiling of the Model 3. The firm has about 400,000 preorders of the Model 3 backed with a $1,000 deposit. The car is priced at $35,000 with deliveries slated for late 2017. Investors will want to know how Musk plans to scale production in order to meet up with the massive demand.
Some people have also indicated that Tesla’s 400,000 preorder numbers might have been gamed or inflated. Tesla has 2-car per person limit on preorders but some folks have reportedly made as much as 20 preorders, which raised doubts about the credibility of the 400K preorder numbers. Musk has since removed any deposits that were not made in line with the two per person policy. We will want to see hard data backing the 400K preorder number.
Cash: The firm ended 2015 with a cash position of $1.2B but that money pales in comparison to its annual capital expenditure budget. The firm needs to find ways to match its expenses with its income and live less on borrowed money. Tesla made about $400M from Model 3 preorders but we can’t afford to forget that the money is from REFUNDABLE deposits.