Commentary around Model 3 will be the key driver for Tesla Inc stock after the earnings.
Shares of Paulo Alto, California-based auto and renewable energy player, Tesla Inc (NASDAQ:TSLA) are on a roll. Tesla stock has gained around 50% since the beginning of December, coming within striking distance of its all-time high of $286.04, which it had reached way back in September 2014. Many analysts are considering the "Trump Effect" to be the main reason behind TSLA stock's spectacular performance. With Tesla being the poster boy of U.S auto manufacturing, investors expect the company to benefit from the current administration's "make in America" focus.
Another factor which is driving Tesla stock sky higher is the positive news around its "Model 3" production. However, the recent run has as also increased pessimism around the stock, as many analysts now consider that the rally in the Tesla stock overdone. Tesla stock lost around 3% in the last two trading sessions after bearish calls from some analysts and profit booking ahead of the earnings call.
Tesla Inc is expected to report a loss again.
Tesla Inc, which recently dropped "Motors" from its name to emphasize that it is no more just an auto manufacturing company, is scheduled to report its Q4 and FY2016 earnings on February 22nd after the market close. This will be the first earnings report the company will be presenting after the merger of SolarCity (NASDAQ:SCTY). The merger has caused a lot of confusion in the analyst community, as they are unable to estimate the impact of the merger on Tesla's earnings. As a consequence most the analysts are leaving the impact of SolarCity out of their financial models and estimates.
Analysts expect Tesla to report an EPS of -$0.43, representing an improvement of over 50% from the year ago, when it had reported a loss of 87 cents per share. On the top line front, Tesla is expected to report $2.19 billion in revenue, 25% higher than the year ago number of $1.75 billion. For the full year, analysts expect Tesla to report an EPS of -$2.28 on revenues of $7.03 billion. Earlier, the company had missed its own Q4 delivery guidance. The manufacturer of Model S and Model X had reported deliveries of 22,000 vehicles in Q4, below its own guidance of 25,000 vehicles. That did not stop the bulls from taking the stock near to its all-time high.
The all importing thing to watch out for during Tesla's Q4 earnings.
More than earnings, investors will be watching out for the commentary on the timeline of "Model 3" launch. One of the biggest reasons behind Tesla's current bull run is the positive news coming for its Model 3 launch. In early January, Tesla announced that it had kicked off the production of lithium-ion batteries at its Gigafactory plant in Reno, Nevada. Tesla needs to ramp up its battery production to meet its "Model 3" delivery targets. While Elon Musk had announced a target of producing around 200,000 Model3 cars in the 2H of FY17, many analysts are still quite skeptical.
In fact, till recently, analysts were not even sure whether Tesla could start the production of Model3 in 2017. But in the last few months, things have moved pretty fast for Tesla. Recently Reuters reported that Tesla is halting production at its California factory for a week as it prepares to start the manufacturing of its Model3. Tesla stock gained around 3% on the news. While the actual production is scheduled to start only in July, analysts are expecting the company to ready a model for display around earnings. If Tesla is able to achieve this and give a strong guidance for vehicle deliveries in 2017, the stock could shoot up further. The success of Model3 is very crucial for Tesla Inc. Tesla is hoping to drive to profitability on this mass market sedan.
Tesla's plans to access capital markets.
Another thing to watch out for during the Q4 earnings will be Tesla's plans to access the capital markets. Tesla had earlier planned to approach capital markets in the second half of the previous years. However, the uncertainty surrounding the SolarCity merger and poor financials forced Tesla to postpone its plans to raise capital. In a tweet, Tesla CEO Elon Musk said that the company is not likely to raise more capital even in the first quarter of 2017. However, given the turn in sentiment around the company and the bullish run, many analysts are expecting Tesla to take advantage of the current strength in the stock and go for a secondary offering. Tesla still needs a huge amount of capital for its Gigafactory and production of Model3 sedans.
The impact of SolarCity Merger of Tesla Inc's financials.
Investors will also be watching out for the impact of SolarCity merger on Tesla's financial. SolarCity is a cash guzzling (just like Tesla) high debt company and is expected to have a negative impact on Tesla's financials. In the previous quarter, the company had reported $200 million in revenues and $425 million in cash outflow from operations. Analysts will also be watching out for product plans of the solar energy business.
Should you buy Tesla stock ahead of the earnings?.
The key driver for the stock after the earnings will be the commentary around the timeline for its Model 3 launch and Gigafactory completion. Any positive commentary during the earnings call could drive Tesla stock much higher. According to Baird analyst Ben Kallo, Tesla stock is a buy ahead of the earnings. In a note to clients, he wrote "We are buyers ahead of Q4 results. We expect updates on the Model 3 and Gigafactory production ramps on the call, which we believe will drive shares higher,".
Tesla stock could also be aided by a short squeeze. The short interest in Tesla stock is currently around 28% with 34.35 million shares currently shorted. The days to cover is around 7 days. A strong post-earnings rally could send the shorts to take cover. Tesla stock is currently a momentum play. However, investors must also remember that, given its current rally, any negative commentary or any delays in Model 3 launch could tank Tesla stock. However, given the recent announcements, the news is more likely to be positive.