Tesla Inc Stock Cools As First Earnings Report With SolarCity Corp Nears

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Tesla Inc (NASDAQ:TSLA) stock has skyrocketed by about 40% since Donald Trump was elected President, perhaps because CEO Elon Musk has his ear as one of his advisors. However, the trend appears to have reversed today as investors begin to consider what next week’s earnings report will bring. It’s the first one since the company merged with SolarCity, and management hasn’t really said much about the merger.

Tesla Stock
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Meanwhile, the shorts and longs duke it out, with short interest hovering around a record high and billionaire Ron Baron predicting that Tesla stock will quadruple in 2020.

Why Tesla stock is skyrocketing

In a research note dated Feb. 15, Morgan Stanley analyst Adam Jonas offered two reasons why he thinks Tesla stock has been soaring over the last three months. One is because he feels that it has a “self-reinforcing tendency (in both directions).” He called the company a “serial capital raiser that is widely seen as not yet in an internally self-funding position.” Based on its ability to raise capital, he feels that the company’s ability to keep its operations and fundamental value is linked to its stock performance, a phenomenon he feels has worked in both directions.

Jonas also believes that Tesla stock has been soaring because of “highly encouraging sentiment” around the timing and milestones for the Model 3. He suggests that the Model 3 could help Tesla multiple its yearly revenues by up to five times over two years. Despite this view, he doesn’t even think that the car will enable the company to have positive cash flow or be profitable in the short term. However, even though he thinks neither positive cash flow nor profitability is in Tesla’s near future, he feels that investors are hugely bullish on the prospect of significant sales growth via the Model 3.

Confusion around the next earnings report

Tesla is scheduled to release its next earnings report next week, reporting the first results since it closed the merger with SolarCity in November. However, Wall Street is apparently confused about what to expect in that report, notes Bloomberg, as it’s unclear just how SolarCity’s results will be incorporated into future releases.

The company hasn’t said anything about how it will fit the solar firm’s results into its total results. For example, one possibility is that it will be added to the Tesla Energy unit, which includes solar energy storage systems. On the other hand, SolarCity might be left as its own separate business unit.

Because of the confusion, earnings estimates for the Feb. 22 report vary from adjusted losses of $2.13 per share to earnings of 41 cents per share. This also means that there will be no such thing as a headline beat or miss. It will take a while for analysts to look at how the results were reported and compare them to their own models.

Shares of Tesla stock closed down 0.43% at $279.76 on Wednesday.

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