Tesla Motors Inc Earnings: Are Expectations Too High?

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Tesla Motors Inc Earnings: Are Expectations Too High?
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Tesla Motors is scheduled to release its next earnings report on Wednesday after closing bell, and consensus estimates suggest losses of 60 cents per share and $1.16 billion in revenue. The EV manufacturer has set pretty high delivery targets for itself in the second half of this year and stands a good change at missing delivery expectations in the June quarter.

Sell-side analysts see a sharp correction ahead for Tesla shares, and tomorrow’s earnings report could be a negative catalyst for the stock. Looking back at stock price movement of Apple and other Wall Street favorites following their June quarter reports also suggests that Tesla shares will decline following tomorrow’s report.

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UBS downgrades Tesla

UBS analyst Colin Langan is now firmly in the bear camp on Tesla. He downgraded Tesla to Sell and set a price target that’s about 20% below where the automaker’s shares are trading right now. He cited two main reasons for his downgrade: valuation and energy storage expectations.

According to Langan, Tesla’s current share price suggests that the company delivers 1.565 million vehicles a year and hits earnings of $46 a share in a relatively short time span. You may recall that CEO Elon Musk said they will be producing “a few million” vehicles by 2025.

Langan sees this as unlikely because he said it would require the automaker to build two more assembly facilities and gigafactories. Also at the suggested size, Tesla would be only slightly smaller than competing luxury automakers BMW and Audi (Graphs in this article are courtesy UBS.).

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UBS is bearish on energy storage opportunities

Further, the analyst noted that shares of Tesla have climbed 35% since Musk tweeted in March about their plans to enter the energy storage market. He estimates demand in the storage market will be at around 3.2 gigawatts by 2020.

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However, he said the industry estimates demand of over 7.2 gigawatts. Additionally, he thinks Tesla’s share price suggests that it would hold 75% of the energy storage market, which he says is unlikely.

Langan pointed out that Tesla bulls continue to say the company’s fundamentals don’t matter, but he thinks a sharp correction in Tesla shares is likely. He noted that the automaker’s second half delivery targets suggest a 50% increase from the first half of the year because the Model X is going into production. A report last week suggested that the crossover is now in production because the EV manufacturer has paused tours of its factory.

He also remains concerned about Tesla’s selling, general, and administrative and research and development expenses as the EV manufacturer designs, develops, and puts the Model 3 into production.

Key questions for Tesla’s earnings call

So what else will analysts be focusing on in Tesla’s earnings call this week? Deliveries and production rate will be huge topics In the second quarter, Tesla delivered 11,507 vehicles, a 14.5% increase from the first quarter’s 10,045 deliveries. For the full year, the EV manufacturer expects to deliver 55,000 vehicles, which is quite a tall order after not delivering even half of that number in the first half of the year. Tesla expects Model X deliveries to boost its delivery numbers in the second half.

Last year the company missed its guidance for 35,000 deliveries, and Trefis analysts say this was mainly because of a lagging production rate. The automaker guided for 12,500 units to be produced during the June quarter, so we should find out tomorrow how well it did. Tesla aims to produce 2,000 vehicles a week.

Trefis analysts also want to find out the lag time between production and delivery of Tesla’s vehicles. They estimate that nearly 80% of the vehicles produced in the fourth quarter of last year were delivered. Tesla management is aiming to reduce the lag time between production and delivery, and this is indeed going to be an important metric going forward.

Automotive margins are also important because they provide a clue in terms of vehicle mix and whether buyers are leaning toward the more expensive or the least expensive models. Tesla is also expected to give an update on its new energy storage business, which recorded a huge order backlog not long after the company made the storage units available for purchase.

As of this writing, shares of Tesla Motors were up 1.04% at $262.68 per share.

Updated on

Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at Mjones@wordpress-785388-2679526.cloudwaysapps.com.
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2 COMMENTS

  1. BioCNG maybe greener in some instances but it is not a replacement for electric as it’s not available in large enough quantities. Also, due to transportation of raw materials and byproducts, processing, storage and distribution BioCNG is NOT carbon neutral.

  2. Here’s why EVs are not greener OR why BioCNG will always be as green!

    EV’s at best are equal to BioCNG powered vehicles and that is
    assuming BEST CASE scenario for EV’s. In todays world, best case simply
    doesn’t apply most of the time. In other words, BioCNG powered vehicles
    soundly beat EV environmental performance most of the time!

    The article entitled, “Here’s Why Electric Cars Are Always Greener Than Gas” as found at

    http://www.hybridcars.com/heres-why-electric-cars-are-always-greener-than-gas/
    very carefully singles out just internal combustion engine (ICE)
    gasoline cars and then attempts to lump all ICE’s together.
    Intellectually dishonest statements such as “the critics have the right
    to be wrong” illustrate how vitriol is the staunch protection of
    electric vehicles and not based in reality. I currently drive a
    dedicated natural gas vehicle that is fueled at a BioCNG facility in
    Southern Columbus, Ohio owned and operated by http://www.QuasarEnergyGroup.com
    It is here today and making a difference. Waste energy recovers has
    been described as one of the last frontiers for the energy industry for
    energy efficiency gains.

    BioCNG powered ICE driven vehicles are carbon neutral meaning they
    borrow carbon in the atmosphere today, and release it back through
    combustion in less than 90 days (when from a biodigester). For the
    purposes of this discussion, when I refer to BioCNG I am not including
    landfill gas as they have a different set of environmental impacts and
    concerns (and much less potential volume and thus impact too). BioCNG
    typically is produced from organic waste. Meaning it is produced from
    organic material that would otherwise end up in a landfill or
    incinerator and thus become a wasted opportunity.

    Environmentally, producing energy from waste will always out-produce
    energy made from virgin feedstock or renewable energy that requires
    toxic infrastructure/equipment or energy intensive equipment (like huge
    wind turbines, “rare earth” components, toxic batteries, etc).

    Consider this, a car is a car is a car, so when considering
    environmental impact the car is a zero in the comparison equation.
    Wrong! Natural gas vehicles have much smaller batteries. That alone is a
    huge difference when one considers sourcing of materials, manufacturing
    and disposal (let alone fire safety – toxic burning). BioCNG vehicles
    are fueled typically at the source of the biogas production which means
    much less energy loss from transmission (as in electrical grid
    transmission loss or fugitive emissions). And by producing waste from
    energy, the waste stream is turned into usable by products as well,
    preserving landfill space (which by the way, is a lousy way to deal with
    waste) and creating sellable commodities such as heat, electricity and
    soil amendments IN ADDITION to BioCNG for fueling stations.

    BioCNG Lifecycle

    Sure EV technology will continue to improve but so will Natural Gas
    Vehicle technology. As long as humans produce organic waste whether from
    our own bodies (as in waste water treatment plants) or from feeding and
    clothing ourselves (think food waste or organic waste from processing
    and manufacturing) BioCNG fueled natural gas vehicles will be a solid
    part of our energy future and will continue to be extremely
    environmentally sound, regardless of the EV propaganda and hype.

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