With earnings due after the bell, Tesla Motors is under a lot of pressure to outperform to the degree that warrants its astronomical market cap valuation. To make matters more difficult, it will have to do so without the sales of California’s zero-emissions credits, which critics point to as artificially inflating Tesla’s profits and cash-flows while the underlying business bumbles along.
Tesla is expected to report earnings of 7 cents a share, excluding some items, based on the average of 10 analysts’ estimates compiled by Bloomberg. In the same period a year ago, Tesla brought in 12 cents a share on the same basis, its first ever profit, but led by a surge in California zero-emission vehicle credit sales and savings from the early repayment of a federal loan, Bloomberg said. This time around, analysts are projecting a loss on a GAAP basis.
Slower vehicle deliveries — due to Tesla’s need to set vehicles aside for other regions — and a further contraction in California’s credits program will put strain on the company’s report later on Wednesday, though Tesla has historically had a knack for pulling a surprise at the last minute. Still, there are concerns swirling about that are not under Tesla’s direct control.
“Constraints in supplies from Panasonic and 1,000 cars on the water headed for China” will keep the automaker from setting another record, Craig Irwin, an analyst with Wedbush Securities, told Bloomberg. He has the stock rated at Outperform. That could pose a headwind to Tesla’s plan of increasing Model S production by 56 percent this year, and analysts and investors will be looking closely at Wednesday’s report in order to glean any possible indication of progress towards that goal.
Chinese demand will play a crucial role in Tesla’s forward momentum, but don’t expect to see any data from the world’s largest auto market in the first quarter report; Tesla only started deliveries to the region until last month. Some are expecting at least an update, though. “We’re going to get more information about what they’re doing in China; Elon was just there,” analyst Ben Kallo told Bloomberg. “It’s an important market going forward, but it’s still building up and the fourth quarter is when we’ll see some nice deliveries there.”
Revenue could potentially reach $704.5 million, Tesla’s best quarterly performance figure ever, according to Bloomberg’s panel of analysts. Crucially, that’s without the zero-emissions credits, and represents a 25 percent leap over the same figure from the year-ago quarter. Projections are also calling for the delivery of 6,429 Model S cars to Europe and North America; the estimates are closely bound, ranging from a low of 6,200 to a high of 6,600. Tesla itself was aiming for 6,400.
Further, some are expecting Tesla to issue an update on the gigafactory, where Tesla will produce its own lithium-ion battery cells that could bring the costs of the battery packs down by at least 30 percent. “Anything they have to say about the gigafactory, positively or negatively, is going to perk everyone’s ears,” Irwin said. “We need to hear at some point what the consortium looks like, because it’s not going to be just Tesla alone.”
The major thing to watch for is that there is no slowdown in Tesla’s production rates. Whispers of a flattening of demand have weighed on the stock, but as long as there’s a waiting list, Tesla will continue to churn out the vehicles to meet that appetite. What happens to the cars following production is the biggest question, but there hasn’t been any indication that they’ll be sitting idly by waiting to be sold.