Tesla Motors Inc. (NASDAQ:TSLA) is all set to announce its second quarter of fiscal 2016 earnings on Wednesday, August 3. While some investors will be fine with the quarterly losses that the electric automaker is reporting since it become a public company, many analysts are concerned about the losses getting broader quarter by quarter.
Missed Delivery Targets
Last month, Tesla stock went down more than 3% as the electric car maker reported fewer-than-anticipated deliveries in its second quarter. The company announced that it has delivered 14,370 vehicles in the quarter, far below its guidance of 17,000. This reveals the fact that though the electric car maker is trying to ramp up the production, it still needs to increase its speed in order to meet its deliveries target. This deliveries deficit is marked as the second time in a row that the automaker’s deliveries come in short of expectations this year. The company witnessed half of its quarter’s production in the last four weeks of the quarter.
According to Tesla Motors, it manufactured total of 18,345 cars during the quarter, but it was only able to deliver 14,370. The EV maker informed that there still are 5,150 vehicles on ships or in trucks ready to be delivered to its customers. It estimates that all the pending deliveries will be made in third quarter. Of the overall 2Q sales, the company delivered 9,745 vehicles of its Model S sedans and 4,625 of its luxurious Model X crossover.
According to Electrek, this is the first time when the electric car company has witnessed a fall in its Model S deliveries for the two consecutive quarters and they are currently at their lowest point since the third quarter of 2014.
The announced lower-than-expected deliveries has disappointed many investors and analysts and has further deepened their concerns regarding Tesla’s current delivery issue, which might not allow the company to meet its production target of 500,000 vehicles per year by 2020.
2Q Earnings Forecast
For the second quarter, Wall Street analysts forecast that sales and net profit/loss both will increase on year-over-year (YoY) basis. The analysts’ anticipate that the Silicon Valley automaker will post loss per share of $0.52 per more than loss per share of $0.48 it had in the same period a year earlier. The loss is expected to widen as costs are increasing due to big investments in its gigantic battery factory in Nevada and future products.
Revenue is estimated to clock in at $1.6 billion, an increase of 36% from $1.20 billion it had in the second quarter of 2015.
In the last reported quarter, it reported $1.15 billion in revenues, a significant 22% rise from a year ago figure of $939 million or 1.6 billion excluding certain items. The reported revenue was just in line with the analyst expectations. The automaker reported a quarterly loss of f $283 million, or loss per share of $2.13 a share. It has almost doubled its first quarter loss as compared to same period a year ago.
Apart from deliveries, one important thing that investors must look for is the reservations of it latest unveiled mass-market Model 3. Many analysts believe that Model 3 pre-orders are not doing well. One of the analysts reported that Tesla’s CTO recently said that Model 3 reservation number was "over 325,000." According to Tesla SEC filings, the reservations was 373,000 in May. This shows that some of the consumers have cancelled their orders. Initially, just over a month after the affordable $35,000 Model 3 was launched, its reservations reached almost 400,000. Hence, it would be huge disappointment if the number is hardly crossing 300,000 at present.
It is likely that the automaker will update the number of reservations it has for its mass-market Model 3, which is expected to compete near the lower end of the electric vehicle market.
Tesla also needs to execute its plan more aggressively for getting this vehicle to the market by late next year and also ramping up the total vehicle production to 500,000 units a year by 2018, with the help of this model. Investors must also look for an update from the management with respect to Model 3, particularly checking to see whether the automaker is gluing to its predicted timeline for the launch and production bump.
In its May offering, the US electric car maker raised $1.7 billion, but Tesla CEO Elon Musk has said that the automaker might need more money in order to finance additional products. From the delivery miss figure we can see that it is likely that the sales will also come short of expectations in the second quarter and spending on the automaker’s battery factory has surged, which is possibly rising the need to dig into Tesla’s cash reserves.
Tesla has promised its investors that it’s going to be profitable by the end of this year and will have positive net cash flow for 2016; hence investors must also expect some updates regarding that. The automaker also announced that it will not have to hit the capital markets to finance its short term expansions, which includes preparing for Model 3 deliveries in latter half of 2017.
The company has reduced the price of its Model S and luxurious Model X as an attempt to capture more sales before its earnings release, and it has also endured scrutiny associated with its autopilot technology.
Recently, Tesla has come under government scrutiny by Federal regulatory as Model S driver died while operating his vehicle on autopilot mode. The company is expected to release some update regarding its autopilot technology. In July, Mobileye, Tesla’s autopilot radar supplier, terminated its partnership with the electric car maker as it did not want to be a part of automaker’s ambitious autonomous technology. Investors must also look for Tesla’s commentary on how the company will move forward without one of its leading suppliers on board.
Tesla has recently informed the Senate Commerce Committee that this recent crash was possibly because of its automatic braking system and not its autopilot technology.
In the late second quarter, the company announced that it plans to acquire the solar installation company SolarCity in an all-stock deal, valuing the company at about $2.8 billion. Shareholders of the solar panel company will receive 0.11 shares of the automaker for each SolarCity share.
The automaker revealed that it has reached on an agreement to acquire its sister company SolarCity, moving a step closer to Tesla CEO Elon Musk’s dream of combining electric car and solar panel companies. It is expected that the analysts will try to investigate the financial impact of this merger on both the companies and how the two parties will benefit from merging together.
Other Notable Things
Recently, Mr. Musk announced a new long-term Tesla’s “Master Plan, Part Deux” that included its plans of making an electric semi-truck, a small SUV, a pickup, and mini bus like vehicles. It is expected that the analysts will demand more specifics on this, especially because this master plan means some new profit channel for the automaker for its foreseeable future and its cash burn on the other side. The CEO usually uses earnings call to give further details on such business plans and hence it is expected that Mr. Musk will do the same in the upcoming earnings call.
Despite increasing sales, Tesla has remained a loss-making company because of its high expenses. In 2015, the company reported higher net loss on both reported and adjusted basis in every quarter, as oppose to same quarters of 2014. Even in this quarter, Tesla is expected to report losses.
For full year 2016, the company estimates that its operating expenses will surge 20% due to development expenses associated with its latest Model 3 and issues in its luxurious model X.
Last week, the US electric car maker celebrated the grand opening of its $5 billion gigafactory, which is located outside Reno, Nevada, that was year ahead of its actual schedule. Tesla expects to churn batteries out of this battery plant later this year, which is the time for the production of its affordable mass-market Model 3.
In a recent research note issued to its investors, Baird’s analysts Ben Kallo and Tyler Frank notified their concerns on Tesla Motors. Though they have reiterated their outperform rating on Tesla stock, the analysts are cautious that the automaker’s margins might disappoint “given the higher mix of Model X vehicles, and due to this being the first quarter of the Model S refresh (although the refresh should allow for higher margins over time).”
The analysts wrote in the report: “Despite much near-term focus on SolarCity, autopilot, deliveries and demand, we find conversations with investors more focused on longer-term earnings potential.”
Tesla shares have underperformed S&P 500 index so far this year. The stock hit an all-time high of $291.42 in September 2014. Since past year, the shares have gained 3.31%. Year-to-date, the stock is down nearly 2%. The 12-month consensus target price is estimated to be $262.19 per share. Of 21 analysts who cover the stock, 10 assigned a Buy rating, while five suggested a Hold.
In the earnings call, investors should also look for the company’s full year guidance for the fiscal 2016. They must also see other updates regarding the difficult production ramp-up of its Model X, Tesla energy and information related to its Model 3.