Tesla Motors Inc (TSLA) Will Report Strong Q3 Earnings But That May Help The Stock

  • Tesla yesterday released a hardware update to its autopilot function which is likely to improve safety.
  • Tesla is likely to report a strong quarter on the back of strong delivery numbers.
  • The SolarCity deal will continue to be a drag on Tesla stock.

On Wednesday, October 26th, Tesla (NSDQ:TSLA) will announce the results of what has been quite an eventful and tumultuous quarter. Tesla stock is down more than 10% since the last earnings report, largely due to the increased risk from the SolarCity merger. Tesla shareholders are scheduled to vote on the deal on November 17th. There has been some good news too for Tesla. It reported strong delivery numbers for the quarter, and yesterday released a hardware update to its autopilot feature. The new autopilot is expected to make driving safer. In a release Tesla stated that:

"As of today, all Tesla vehicles produced in our factory – including Model 3 – will have the hardware needed for full self-driving capability at a safety level substantially greater than that of a human driver,"

Musk also told the reporters that Tesla plans to do a cross-country ride from LA to New York "without the need for a single touch" by the end of 2017. This will put Tesla ahead of its rivals in the self-driven cars space. But its unclear how much the launch will help Tesla stock.

Also Read: Should Tesla Motors Inc (TSLA) Worry As Apple Inc (AAPL) Beefs Up Project Titan?

Tesla Will Report A Strong Earnings

Tesla is likely to report very strong Q3 earnings. It has already topped analysts estimates for vehicle deliveries in the third quarter. The company delivered 24,500 vehicles in Q3, of which 15,800 were Model S and 8,700 were Model X an increase of 70% from the previous quarter. The delivery numbers become more impressive when you take into the account the fact that automobile sales have remained sluggish in past few months.

Ben Kalo and Tyler Frank of Baird expect Tesla to report better than expected results. The consensus is for Tesla to report a non-GAAP earnings of $0.07 on revenues of $2.33 billion. The estimates represent more than 87% YoY growth in sales and a multifold increase in EPS. In the previous quarter, Tesla reported an earnings miss of around 100%. In fact, it has missed analysts estimates in 3 of the last four quarters.

Investors must watch out for Tesla's GAAP profitability and free cash flow numbers. Tesla hopes to be GAAP profitable in this quarter, which it has never been able to achieve. A positive GAAP EPS will be great news for Tesla investors. This is likely to be a good quarter for Tesla. In an email to Tesla employees, Musk had said that third quarter is likely to be the "best ever quarter in Tesla's history".

Capital Requirement

In a surprise announcement, Elon Musk had tweeted that Tesla will not be approaching market this year to raise funds. When pressed further he said that it is not likely to raise money in Q1 2017 either. This is contrary to what many analysts had expected and what even the company had indicated earlier. In a SEC filing in August Tesla had stated that it intends to approach the market to raise funds either through debt or equity. Even Elon Musk had in an email talked about the need to raise cash:

"Even more important, we will need to raise additional cash in Q4 to complete the Model 3 vehicle factory and the Gigafactory."

As we have noted in earlier posts, Tesla is a cash guzzling company, which is in great need of cash to fund its expansion plans. And many analysts still believe that Tesla will need to approach the market to raise money for its investment in the Gigafactory and production of the Model 3. Investors must watch out for any commentary related to its investment plans and cash requirements. Investors must also keep an eye on Tesla's free cash flow numbers and cash position. Investors should also watch out for any commentary on SolarCity merger.

Model 3 Timeline

Earlier Tesla stock fell more than 2% after CNBC reported that Tesla will start shipping its Model 3 only in 2018, instead of late 2017 as expected earlier. However, Tesla later clarified that 2018 delivery schedule is only for new orders. Old orders will be delivered in late 2017 as promised. Model 3 is a very important piece of Tesla story and crucial for Tesla to achieve profitability. And Tesla should ensure that the there are not many hiccups in production and delivery of this mass market product. Tesla already has around 400,000 order for Model 3. Investors should watch out for any timeline regarding launch and delivery of this product.

Conclusion

Tesla is likely to report a strong quarter on the back of strong delivery numbers. The company is expected to report its first non-GAAP EPS profitability in two years and hopes to report first ever GAAP profitability. The revenue growth is also likely to come in strong. All in all, it is likely to one of the best quarters for Tesla motors. But the shadow of the SolarCity merger continues to loom large on Tesla stock. Goldman Sachs had cut Tesla's price target to $185, in spite of raising revenue and earnings forecast, due to increased risk associated with the merger plans. Tesla stock will continue to remain a risky proposition till the merger issue is sorted out.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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Comments on this article and TSLA stock

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First of all Tesla announced they will no longer publish non-GAAP earnings, hired new CFO too.

Second of all, the STOCK has nothing to do with FINANCIALS but entirely dependent on people's desire to buy the stock, which SHOULD be based on financials but in some cases it's just based on people's impressions. So while the stock may be overpriced, bearish, or whatever else, it has no bearing on company's success or future success. Criticize the stock all you want, the company didn't write that price, WE DID.

Finally, this man has yet to build a car that was not reserved for sale. For 8 years he has sold every single car BEFORE it was produced. The smart move here is to use this position to leverage borrowing money from investors (who willingly agree, nobody's forcing anyone to lend him money here), and invest that money into growing the company. Then leveraging your growth to borrow even more, to invest in even more growth, then borrowing yet again and reinvesting yet again into yet again more growth.

Why?

BECAUSE SUPPLY HAS YET TO MEET DEMAND.

Aren't you guys economists??? What's the #1 rule, LAW of economics?
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user profile picture
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The point of the borrowing and investing cycle being:

TSLA will likely not achieve profitability for many many years, maybe a decade or two since Musk will continue investing in solar, grid, utility, and storage that we know of so far, as well as more cars trucks and buses.

Does this mean the company isn't profitable? No.

It means they're using their profits immediately for further investment and growth (read Musk's first Master Plan, it literally says this word for word), and that's just smart.

Money sitting in a bank is a waste, you know this.
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