Tesla earnings preview: Analysts want details on Model 3 and Gigafactory
Reporting from San Francisco — Tesla bull or Tesla bear, it doesn’t matter. When the company reports earnings Wednesday, hard-core investors and analysts of all persuasions are likely to shrug off the specific results. “The numbers mean nothing right now,” said Trip Chowdry, managing director at Global Equities Research and a Tesla enthusiast.
Tesla doubter and short seller Mark Spiegel of Stanphyl Capital Management feels the same: “The results in any given quarter are irrelevant for a while,” he said.
Irrelevant because Wednesday’s report mostly will reflect sales of the company’s two main products – the Model S and Model X luxury electric cars – minus the heavy investments on new products that will make or break the company.
That means a bottom line of losses. So long as the losses aren’t huge, no big deal. Wall Street is expecting them.
Instead, analysts will be focused on indications of progress on make-or-break products. They include the Model 3, the mass market electric sedan the company plans to start manufacturing this year. Tesla aims to sell hundreds of thousands of them annually.
Also make or break are large battery packs that store electricity at homes, businesses and utilities. Battery packs will soon be a key product line for Tesla – some believe more important to the company’s future than the cars. Tesla recently started pumping them out in volume at its giant Gigafactory in Nevada.
The new products will need to get on track and stay there if Musk is to succeed with his unusual corporate mashup: a car company, a battery storage company and a solar power company, all rolled into one, complete with one-stop shopping at Tesla retail stores.
Analysts surveyed by FactSet Research Systems Inc. estimate Tesla will come close to break even on net income for fourth quarter 2016, on $2.2 billion sales, compared with a $320 million net loss on $1.2 billion sales for the same period in 2015.
For the full year, analysts predict a $297-million net loss, on $6.9 billion sales, compared with an $888-million loss on $4 billion in sales in 2015.
While the sales growth reflects strong progress with the Model S sedan and the Model X sport utility vehicle, analysts will look to other information for a clearer look at Tesla’s future.
Some questions they plan to ask on the earnings call Wednesday after the market closes:
On the Model 3:
- When will the assembly line at the Fremont factory be locked and loaded?
- When will full production begin?
- When will enough Model 3s be shipped to satisfy large numbers of waiting customers?
On the Gigafactory:
- How fast is Tesla hiring manufacturing employees?
- Is training a bottleneck?
- How many storage batteries will Tesla ship this year?
Chowdry wants more detail on Autopilot, Tesla’s self-driving technology, already considered the industry’s best. Autopilot could help the Model 3 stand out against competitors, he thinks. He wants to know when the latest iteration, Autopilot 8.1, will be released.
Efraim Levy of CFRA Research said he’s curious about Tesla’s progress reducing the costs of battery packs for its electric cars. Battery packs still cost more than most combustion car engines, without even counting the electric motor.
“That’s an important part of making the Model 3 as profitable as possible,” he said.
David Whiston, analyst at Morningstar Research Services, wants more detail on capital spending plans and how new investment will be financed. It might be time for another equity offering, he said. Tesla stock was priced at $272.23 at the close of trading Friday, a 43% gain since election day, compared with an 11% gain for the Dow.
Tesla reported $3 billion in cash in its most recent filings, but cushioning the coffers might be wise, Whiston said: “At some point things will get a lot worse in the economy. To survive and keep growing, they’ll need cash.”
In November, Tesla bought SolarCity, a solar panel and rooftop company part-owned by Musk. Analysts are curious how Tesla will incorporate SolarCity numbers into its financial reports. Analysts and investors want separate breakouts of businesses. However it’s reported, SolarCity “is not what we think is prime” in evaluating the company, according to Chowdry.
He’s far more interested in Gigafactory production. Storage batteries “could be industry-changing, and redo the whole utility landscape.” Utilities are moving to more reliance on solar and wind power, but need battery storage to even out the power load when the wind doesn’t blow and the sun doesn’t shine.
Barring calamity, Chowdry said, it will be 2020 before earnings reports reflect Tesla’s sustainable financial health, when all key product lines are running smoothly.
Short-seller Spiegel believes the day of reckoning will come sooner, by the end of 2018, when a promised new wave of electric cars from major automakers starts shipping to showrooms. Tesla’s electric models have faced little direct competition, but that’s already changing with the recent introduction of the Chevrolet Bolt EV, Spiegel said. That car, with a range topping 200 miles, will compete directly with the Model 3.
Right now, though, the high price of Tesla stock and the anticipation that it can’t be sustained is what’s fueling Tesla short sellers, whose positions account for 28% of Tesla’s shares. It even gives some long-term investors pause.
“A lot of the value is so far out in the future for this company, and it’s not even selling 100,000 cars yet,” Whiston said.
Levy has a hold recommendation on the stock. At current prices, “it’s a premium valuation. A lot of forward good news value is built into the price.”
But Elon Musk himself continues to generate lots of buzz, which may translate into excitement among retail investors. “There are a lot of fans who will buy stock in Elon Musk regardless of the price today,” Levy said.
Twitter: @russ1mitchell
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