Tesla Earnings Preview: Production Target Achieved, Now What?

Electric vehicle maker and energy storage company Tesla Inc. reports earnings after market close on Wednesday, August 1. Here’s a look at what might be expected from TSLA’s quarterly report.

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Tesla (TSLA) reports earnings after market close on Wednesday, August 1. The report is likely to be a widely watched one, as bulls and bears continue to be vocal about the stock.  

For Q2, TSLA is expected to report an adjusted loss of $2.71 on revenue of $3.96 billion, according to third-party consensus analyst estimates. In the same quarter last year, TSLA posted a loss of $1.33 per share on revenue of $2.79 billion. 

Per usual, TSLA reported its Q2 production and delivery figures shortly after the quarter ended. Here’s a recap of those results: 

  • Total Q2 production was 53,339 vehicles, up 55% from Q1—28,578 Model 3 were produced, and 24,761 Model S and Model X
  • 40,740 vehicles were delivered during the quarter—18,440 Model 3, 10,930 Model S and 11,370 Model X
  • At the end of the quarter, there were 11,166 Model 3 and 3,892 Model S and Model X in transit to customers, which will be recorded in Q3 results

TSLA said it added a fourth assembly line dedicated to Model 3 production, which allowed it to finally achieve its production target of 5,000 vehicles per week. The company originally planned on achieving that rate by December 2017, but ongoing manufacturing issues kept it from getting there earlier. TSLA said net reservations for the Model 3 were roughly 420,000 at the end of Q2. 

New, higher-priced versions of the Model 3—the dual motor AWD and its performance version—are being rolled out to Tesla stores shortly. Another change the company has made is expanding the option for customers to test drive the vehicle at local Tesla stores. 

With the Q2 production and delivery release, management reaffirmed its guidance that it will generate positive GAAP net income and cash flow in Q3 and Q4, assuming Model 3 production exceeds 5,000 vehicles per week and gross margins continue to improve on a sequential basis. Some of the headwinds management said they anticipate include higher material costs from tariffs and commodity price increases, as well as a weaker U.S. dollar weighing on results. 

TSLA has been insistent it won’t need to raise capital, although analysts widely agree the company could need to raise anywhere from $1 billion up to $10 billion over the next several years as it has continued to burn cash. At the end of Q1, TSLA reported a cash balance of $2.7 billion, and current assets of $6.38 billion and current liabilities of $8.65 billion. 

Tesla In 2018. TSLA has been trading all over the place in 2018. The stock started the year at $312, down quite a ways from its all-time high of $389.61 hit in September. After bottoming at a low of $244.59, it rallied back up to $373.73 in mid-June and has since dropped down on the year again. Chart source: thinkorswim® by TD Ameritrade.   Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Tesla Options Trading Activity

Around TSLA’s upcoming earnings release, options traders have priced in a 7% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was on the high end at the 95th percentile as of this morning. 

In short-term trading at the August 3 weekly expiration, calls have been active at the 300 strike price, although there’s been a smattering of activity across a range of strikes around the money. On the put side, trading has been concentrated at the 280 and 290 strikes. 

Further out at the August 17 monthly expiration, calls have been active at the 300 and 305 strike prices, while puts have seen heavier trading at the 290 and 300 strikes. At many of the expirations, especially longer-dated ones, there have been heavier volumes on out-of-the-money puts.

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.

What’s Coming Up

There’s a lot on the calendar this week. The big thing in economic data is July’s employment report, due out Friday morning. The Fed kicks off its meeting and will wrap up tomorrow. And there are plenty of companies scheduled to report earnings coming up: 

  • MGM (MGM) before the open on Thursday, August 2, and Activision Blizzard (ATVI) after the close 
  • Kraft Heinz (KHC) before the open on Friday, August 3
  • Disney (DIS) after the close on Tuesday, August 7
  • Home Depot (HD) before the open on Tuesday, August 14
  • Wal-Mart (WMT) before the open Thursday, August 16, and Nvidia (NVDA) after the close the same day

For a look at what else is going on, check out today’s Market Update if you have time. 

Good Trading,
JJ

@TDAJJKinahan

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