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Earning Preview: Tesla Gets Ready for the Model 3

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May 3, 2017
Tesla Supercharger
iStockphoto.com/Svetlana_Angelus

Electric vehicle and energy storage system manufacturer Tesla Inc. (TSLA) reports first-quarter earnings after the bell on Wednesday, May 3. It’s expected to report a loss of $0.55 per share on revenue of $2.5 billion, according to consensus third-party analyst estimates. Analyst estimates range widely for the quarter with the primary range of losses between $0.43 and $0.67 per share. In Q1 2016, TSLA posted a loss of $0.57 per share on revenue of $1.6 billion.

The stock had a huge rally year-to-date and is up just under 47% so far in 2017, compared to a 12.27% increase in the Nasdaq (COMP). However, that performance is coming on the heels of a 10.97% decline in 2016, when the company substantially lagged major indexes.

The options market has priced in about a 5% potential stock move in either direction around its earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. In short-term options trading at the May 5 weekly expiration, there was higher volume in calls at the 320 and 325 strike prices and puts had higher volume at the 310 and 315 strikes. As of this morning, the implied volatility sits at the 43rd percentile.

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. 

Tesla YTD stock performance

FIGURE 1: TSLA YTD PERFORMANCE.

TSLA hit a new all-time high yesterday heading into earnings. Its stock chart is shown above compared to Ford (red line), General Motors (teal line) and the NASDAQ (purple line). YTD performance as a percentage is shown on the right side of the chart. Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Update on the Model 3 and Other Projects

In last quarter’s investor update letter, CEO Elon Musk wrote the Model 3 program was on “track to start limited vehicle production in July and to steadily ramp production to exceed 5,000 vehicles per week at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018”. On several occasions, Musk has said the company will produce 500,000 units of the car in 2018.

In the past, the company has experienced delays and pushed back delivery and production timelines for the Model S and Model X. Beyond the Model 3, the company recently announced plans to launch other vehicles in the future, including an electric semi-truck.

Vehicle Production and Deliveries Compared to Competitors

Earlier in April, Tesla released its Q1 2017 vehicle production and delivery stats. Deliveries increased 69% over Q1 2016 to just over 25,000 vehicles—approximately 13,450 were Model S and approximately 11,550 were Model X. On the production side the company produced 25,418 vehicles in the quarter.

While it may have been a record quarter in deliveries and production for Tesla, it’s volumes still pale in comparison to other automakers Ford (F) and General Motors (GM). Both of these companies produce millions of cars per year.

Shifting Business Model at SolarCity

Tesla subsidiary SolarCity, which is part of the fourth stage of the original “master plan”, recently announced delays to certain styles of its new solar roofs. In addition, it also announced a shift in its business model away from door-to-door salespeople and leasing. Instead the company will focus on selling the products in its existing store network, according to last quarter’s investor letter.

Clearly, Tesla has a lot going on as a company and it’s hard to touch on everything the company is doing and working on. Investors will find out more after the bell when the company reports.

Good Trading,
JJ
@TDAJJKinahan

NC