Tesla earnings: Will Model 3 live up to the hype?


Tesla Inc. is scheduled to report second-quarter results after the market close on Aug. 2.

Wall Street expects another loss for Silicon Valley company, but that is unlikely to matter much. The real burning questions are the ones about the Model 3.

That’s the mass-market sedan at the center of Tesla’s expansion plans, a $35,000 all-electric car the company hopes will smooth its path to becoming a larger car maker.

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  has said it would deliver the first handful of Model 3 sedans in July, and Chief Executive Elon Musk confirmed that timeline earlier this month. With a few days remaining in the month, and a stock that has wobbled in recent weeks, all eyes will be on the Model 3.

Here’s what to expect:

Earnings: Analysts surveyed by FactSet expect Tesla to report a loss of $2.38 a share in the second quarter, which would compare with a loss of $2.09 a share in the second quarter of 2016. The company is expected to report an adjusted loss of $1.85 a share in the quarter.

Estimize, a crowdsourcing platform that gathers estimates from sell-side and buy-side analysts as well fund managers, executives, academics, and others, has a consensus per-share loss of $1.78 for Tesla, based on 128 estimates.

Revenue: The same analysts forecast sales of $2.54 billion in the quarter, which would compare with $1.56 billion in the year-ago period and would be a slight dip from $2.7 billion in the first quarter.

Estimize analysts predict sales of $2.63 billion.

Stock price: Tesla shares tapped record highs in May and June after the company reported first-quarter sales numbers above expectations, fueling hopes that all was well with the Model 3. That culminated with a record close of $383.45 reached June 23, the same day the stock hit an intraday high of $386.99. Those are the numbers to beat.

However, earlier this month, after Tesla reported it sold fewer vehicles in the second quarter than Wall Street expected, the stock started to retreat. It flirted with bear-market territory earlier in July. Shares are currently about 11% down from their June 23 high-water mark.

See also: Tesla’s bear-market dip, in one chart

The retreat has dented Tesla’s 2017 gains, but the ride is still impressive. Tesla shares are up 60% so far this year, which compares with gains around 11% for the S&P 500 index. That outperformance holds in a three-month period, with Tesla stock up more than 10% to the benchmark’s 3.9% rise.

Other issues: Expect analysts to ask questions about the Model 3 production ramp and about how close Tesla is to fulfilling its promise to run its factory at a production rate of 500,000 vehicles annually by the end of 2018.

Musk has teased new vehicles and products joining Tesla’s current lineup, including an all-electric semi truck and a compact SUV, so expect some questions about the timeline for new vehicles and products.

See also: New rule forces car makers into big changes in how they count revenues

Another perennial question — whether demand for Tesla’s pricier, luxury vehicles is waning — is sure to be featured. Analysts at UBS said in a recent note they believe demand for the Model S luxury sedan and the Model X luxury SUV is slowing, given overall flat production since the fourth quarter of last year.

The UBS analysts expect a larger loss for full-year 2017, tweaking their estimates to a loss of 20 cents a share, from a previous estimate of losses around $3.70 a share. Wall Street expects the year’s adjusted loss to hover around $6.12, according to FactSet. Tesla is seeing posting a GAAP and adjusted profit in 2019.

Analysts at Goldman Sachs also believe Model S and Model X demand is plateauing, but give Tesla some credit for bringing the Model 3’s soft launch date to July rather than September as they had expected.

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They remain firmly in the bear camp for Tesla, however, seeing “potential for downside as the Model 3 launch curve undershoots the company’s production targets and as 2H17 margins likely disappoint,” they said in a note. Furthermore, Tesla’s cash burn should intensify as the year progresses, and the analysts predicted Tesla will likely tap the capital markets in the first half of 2018.

Among the more optimistic on Tesla, Guggenheim analysts said they expect the Model 3 rollout to drive “at least” eight quarters of positive momentum for the company. They recalled that about 400,000 reservations on the car (Tesla has not updated the initial reservations number), sight unseen, might be a far out undercount. Preorders placed today “will soak up Tesla’s Model 3 production right through to (second quarter of 2019)”, they said.

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