- Tesla is due to report third quarter earnings on Nov. 3 2015, after closing bell.
- The company is expected to report healthy top line growth but widening losses.
- This is likely to keep Tesla shares depressed for maybe another quarter or two.
- Tesla shares are, however, likely to rebound due to the company's impressive top line growth.
Leading electric vehicles manufacturer Tesla (NASDAQ:TSLA) is due to report third quarter fiscal 2015 earnings on Nov.3 after closing bell. Tesla’s earnings are usually scrutinized vis-à-vis the number of vehicles sold. During the company’s second quarter letter to shareholders Tesla said that it expects to produce just over 12,000 vehicles compared to 12,807 sold in Q2 and to deliver approximately the same number as the company sold during the second quarter--11,532 units--despite having closed down its production plants for a week.
Tesla has a pretty good track record when it comes to meeting expectations for vehicle deliveries. The company has met or exceeded delivery guidance in each of the last ten quarters except one. So there’s a good chance the company will meet or exceed that target again.
Tesla does not usually provide actual revenue and earnings numbers but does give some useful clues that investors can stitch together and arrive at ballpark figures. Tesla’s automotive revenue during the second quarter clocked in at $878 million, which translates to an ASP of $76,136 for its vehicles. Tesla said that it expects Model S ASP to decline by more than 100 basis points (1 percentage point) during the third quarter. But that might be more than offset by the much higher ASP of the new Model X. Assuming Tesla’s deferred revenue of $242 million increases by around 20%, Tesla’s Q3 revenue might be roughly 3%-5% higher than second quarter’s number of $1.12 billion.
Regarding earnings, Tesla did not divulge much information, but said that it expects non-GAAP automotive gross margin to come in slightly below last quarter’s 23.9%. The company’s net income, however, is likely to be substantially lower than last quarter’s $61 million (EPS of -$0.48) since the company said it expects operating expenses to grow 5%-10% sequentially. In fact, Wall Street’s consensus is for Tesla’s net loss to increase 145% Y/Y to -$0.71 per share compared to -$0.29 per share during last year’s prior year. Sequentially that would be a hefty 48% increase in net losses.
Tesla though has managed to soundly beat earnings estimates for the last two quarters running, so it won’t come as a surprise if it extends that streak and reports a much lower loss than feared.
Tesla Earnings Surprise History
Tesla Earnings Impact On Stock Performance
Tesla shares usually gain when the company manages to exceed expectations for vehicle deliveries and drop when the company fails to meet expectations.
Tesla shares have been very anemic lately after enjoying wild growth over the prior 4 years. Although Tesla shares have tucked on gains of more than 900% over the past five years, the shares have returned -6% YTD and -11.1% over the past 12 months. This can be chalked up to the company’s ballooning losses.
During the second quarter, Tesla’s revenue expanded at a healthy 40% clip but its losses nearly tripled to -$184.3 million. Tesla then went ahead and lowered its full year delivery guidance from 55,000 units to a lower range of 50,000-55,000 units. Tesla shares tanked 8% after the earnings call.
Tesla’s losses are not going to go away overnight. The company is still investing heavily in the development of new models such as Model X and Model 3. The company is also investing heavily in building new production plants in foreign countries in a bid to lower production costs.
But there is some light shining at the end of the tunnel. Battery costs, the biggest cost component for EV manufacturers like Tesla, have steadily been coming down at about 14% every year. Falling battery prices will allow Tesla to price its vehicles more competitively and sell in volumes as I explained in this article. Tesla CEO is on record saying that the company might only be able to achieve full profitability when it’s able to sell at least 500,000 units per year. The company sees that happening around 2020.
Tesla’s mounting losses are unlikely to slow down soon due to the company’s ongoing capital investments. While this might keep the shares depressed for maybe another quarter or two, the company’s strong top line growth is likely to keep investors interested in the company and the shares will eventually make a strong comeback.