Tesla Motors Inc: Q2 In Line, But Q3 Estimates May Be Too High

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Tesla Motors Inc (NASDAQ:TSLA) is scheduled to release its next earnings report on July 31. Analysts generally expect the automaker’s results to be in line with guidance and estimates, although some see a risk in the company’s third quarter guidance.

Tesla results expected in line for Q2

In a report dated July 24, 2014, Baird analysts Ben Kallo and Tyler Frank reiterated their Overweight rating and $275 per share price target for Tesla. They think production could be a bit better than expected, thus setting the automaker up for a solid second half of the year. For the second quarter, they estimate 7,565 Model S deliveries, which is in line with guidance.

The big issue they see is consensus estimates for the third quarter, which they think need to come down. They say Wall Street doesn’t seem to be accounting for higher operating expenditures and Tesla’s leasing program, so they remain cautious heading into next week’s earnings report.

Expectations for Tesla’s earnings

The Baird team is projecting second quarter sales of $739.6 million, compared to the consensus estimate of $823.7 million. They’re expecting non-GAAP net income of $1.2 million, compared to Wall Street’s estimate of $1.5 million. For non-GAAP earnings per share, they’re predicting 1 cent per share, compared to consensus estimates of 4 cents per share.

They’re expecting Tesla Motors to plan for higher operating expenditures as it ramps up production and increases the number of Superchargers, service centers and stores it has. They’re predicting third quarter non-GAAP EBIT of about $26 million, compared to the consensus estimate of $34 million.

Upcoming catalysts for Tesla

The Baird analysts think production during the second quarter was solid and that the reconfiguration of its production line will result in a strong second half of the year. They’re expecting the automaker is well on track to hitting its target of 1,000 vehicles per week.

They see a number of catalysts in Tesla Motors’ near future, like continued demand for the Model S. They expect it to remain strong in the U.S., China and Europe. In addition, the automaker has a number of “significant milestones” over the next 18 months. Tesla is working on expanding its production lines, starting production of the Model X, building out its stores and Supercharger network and continuing to expand across Asia and Europe.

Other catalysts include continued progress toward Tesla Motors’ gross margin target of 28%. Also they say successful Supercharger station deployments in Asia, North America and Europe could be a catalyst. Other potential catalysts include increasing global sales, the introduction of the Model X, the debut of the Generation III prototype, expansion of production capacity and additional details about the gigafactory.

What about Tesla’s gigafactory?

The Baird team said the gigafactory brings Tesla Motors another step closer to making the Generation III a reality. They say the automaker has already innovated in auto production by using a cost-efficient platform model for its cars and reinvented the downstream market through its direct to consumer sales model.

They think the gigafactory will enable Tesla to reinvent the upstream market as well by making its own battery packs and reducing costs. They say investors want to know which companies Tesla will partner with and see Panasonic as being a likelihood. They also see SolarCity Corp (NASDAQ:SCTY) as a possibility because it would provide another customer for Tesla’s batteries.

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