Earnings Preview: Tesla’s Q4 Results on Tap This Week

Electric-vehicle maker and energy company Tesla Inc (TSLA) reports earnings after market close on Wednesday, Feb. 7. Here’s a look at what might be expected.

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Tesla (TSLA) reports fourth-quarter earnings after the closing bell on Wednesday, Feb. 7. For several quarters now, the primary focus among analysts has been on the company’s ramp-up of Model 3 production. And it doesn’t seem likely to change.

Per usual, TSLA already released Q4 production and delivery figures, as well as production targets for the Model 3. These were the main highlights from TSLA:

  • In Q4, TSLA delivered a total of 29,870 vehicles, comprised of 15,200 Model S, 13,120 Model X and 1,550 Model 3. 
  • Management said they “made major progress addressing Model 3 production bottlenecks”, hitting a peak of 793 Model 3s in the last week of the quarter.
  • Management plans to gradually ramp Model 3 production in Q1 and expects to be producing 2,500 Model 3 vehicles by the end of the quarter. By the end of Q2, the company is targeting weekly production of 5,000 Model 3s.

This is the second time TSLA has delayed production targets for the Model 3. For the most part, analysts were upbeat that TSLA had finally set an attainable production target, although some expressed concerns that the company could need to raise more capital as it continues to burn through a large amount of cash.

For Q4, TSLA is expected to report an adjusted loss per share of $3.19, widening from the $0.69 loss in the prior-year quarter, on revenue of $3.3 billion, according to third-party consensus analyst estimates. Revenue is projected to increase 44.3% year-over-year.

One topic that might come up on tomorrow’s earnings call is the recently announced long-term performance award for CEO Elon Musk, which consists of a 10-year grant of stock options that vests in 12 tranches. This will be Musk’s only compensation, the options only vest if certain market cap and operational milestones are achieved, and he must remain as either CEO or both executive chairman and chief product officer.

The move was seen by some as a way to reduce investor concerns about key man risk, which occurs when an organization relies heavily on one individual and their departure could have a negative impact on the firm.  

Tesla Inc stock chart showing performance since start of 2017

TSLA SINCE START OF 2017.

Tesla (TSLA) has dropped along with the broader indices the past few days, but shares were still up about 3% year-to-date. Since the start of 2017, TSLA is up 53.52%, outpacing the Nasdaq 100’s (NDX) 32.26% increase and the S&P 500’s (SPX) 17.32% gain over the same timeframe. Chart source: thinkorswim® from TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Tesla Options Trading Activity

Around the upcoming earnings release, options traders have priced about a 6.1% potential share price move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. As of this morning, implied volatility was at the 99th percentile. This information was pulled at 9:30AM ET and it could shift depending on trading activity leading up to the report.

In short-term trading at the Feb. 9 weekly expiration, calls have been active at the 340 and 350 strike prices, with a decent amount of activity in the out-of-the-money calls at the 360 and 370 strikes. Put activity has been spread out across a large number of strikes ranging from 300 to 340, with heavier trading at the 315 and 320 strikes.

Looking at the next few months of expirations, there hasn’t really been too much activity that stands out. Overall during yesterday’s session, 26,373 contracts traded on the call side while 33,949 contracts traded on the put side.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Looking Ahead

After Friday’s and yesterday’s market drops, combined with more earnings and the potential for another government shutdown this week, it’s hard to say what the next few trading sessions will hold. After what seemed like one record close after another over the past year, the past couple of days might’ve surprised a few people, but so far the S&P 500 (SPX) is down less than 1% in 2018.

More earnings are on the docket this week with reports coming up from Twitter (TWTR) before the open on Thursday, Feb. 8 and Activision Blizzard (ATVI) after the close the same day. The next few weeks bring results from Deere (DE), MGM Resorts (MGM), Wal-Mart (WMT) and Home Depot (HD), among others.

As always, don’t let panic drive any of your trading and investing. Ultimately, the important thing is that you’re comfortable with your level of risk. 

Good Trading,
JJ
@TDAJJKinahan

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Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

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