Tesla Motors Inc (TSLA) Earnings Preview: Margins In Focus

Tesla Motors Inc (TSLA) Earnings Preview: Margins In Focus
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Tesla Motors Motors Inc (NASDAQ:TSLA) is set to release its second quarter earnings report on Wednesday after closing bell, although the finalized bid for SolarCity has usurped most of Wall Street’s attention. Consensus estimates suggest adjusted losses of 95 cents per share on $1.56 billion in sales. We already know the automaker missed its guidance for deliveries because it reported that early last month.

In last year’s second quarter, the company reported adjusted losses of 48 cents per share

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Tesla’s biggest bulls expect a miss

Dougherty & Company is one of Tesla’s biggest bulls and has been since before analysts Charles Anderson and Jessica McHugh took over from Andrea James. The firm has a Buy rating and $500 price target on Tesla Motors, but interestingly, Anderson and McHugh expect the automaker to consensus on both earnings and revenue. They’re looking for losses of 95 cents per share and $1.62 billion in sales.

They believe automotive gross margin will be the focus because we already know that the company delivered 9,745 Model S sedans and 4,625 Model X crossovers during the second quarter for a total of 14,370 deliveries. This came up short of the initial outlook for 17,000 deliveries.

The Dougherty team wants to hear about how Tesla is doing on its goal of a 25% gross margin for the automotive segment. They believe that the addition of the 60kWh option with an upgradable range, which costs less than the higher kilowatt-hour models, places upward pressure on unit numbers but downward pressure on average selling prices and gross margins. They add that every 100 basis points of automotive gross margin is expected to have about 25 cents per share in earnings impact in the second half of the year.

The Model 3, Gigafactory and more

Anderson and McHugh also expects Tesla management to set forth a confident tone about the Model 3, noting that they were confident at the recent Gigafactory Q&A session and when they spoke about the end of the relationship with Mobileye. They also indicated that the separation from Mobileye had been expected, despite speculation from some analysts that it had something to do with the recent Autopilot-related accident that took a man’s life. They believe progress on the Model 3 is the top area of investor interest.

The Gigafactory will play an important role in Tesla’s ability to keep the Model 3 at the price range it has promised, so it is certainly a related topic. However, there may not be much to say about it because the automaker held the grand opening for the facility on Friday, even though the construction for most of the factory is not complete.

Some investors and analysts are looking for an update on the Autopilot software as regulators are investigating three accidents in which it was said to have been engaged. However, the automaker said that it was not engaged at the time of at least one of those accidents. It has also been working on an update, and analysts are wondering how it is going, particularly since Mobileye, a key supplier of components for Autopilot, will stop working with the company in the near future.

The ramp of production for the Model X will also likely be a hot topic because it has been so problematic. If Tesla can’t speed it up, then it will be unlikely to meet its goal of delivering 80,000 vehicles this year.

Shares of Tesla Motors declined by as much as 1.44% to 226.69 during regular trading hours on Tuesday.

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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 [email protected]
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