Tesla Motors' Earnings: 1 Thing Investors Can Count On

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks opened lower this morning, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) down 0.53% and 0.56%, respectively, at 10:15 a.m. EST.

Niche automaker Tesla Motors (NASDAQ: TSLA  ) will report its financial results for the third quarter after today's market close. Wall Steet is expecting Tesla to earn an adjusted $0.10 per share on revenue of $503 million (on a GAAP basis, the company is forecast to show a loss of $0.08 per share).

What can investors expect from the event? While I think individual investors are unlikely to come out ahead by trying to "game" the earnings, betting on a beat or a miss, I think there is every chance that the stock will be volatile in the wake of the release, during today's after-hours session and tomorrow.

My conviction stems from the stock's valuation, which is stratospheric, at 183 times the estimate for the next 12 months' earnings per share. But don't take my word for it -- last month, at a launch event for a Tesla showroom in London, CEO Elon Musk said, "I think that we have quite a high valuation, and a higher valuation than we have any right to deserve."

The following table presents one way to think about the $21.3 billion value the market is current awarding the company by relating it back to the company's estimated future car production:


Projected Vehicle-Production

Current Market Capitalization/Vehicle



$1 million







Source: Company estimates.

Assuming a $100,000 sticker price for a Tesla S sport sedan with the largest battery and the company's target 25% gross margin (which would yield a $25,000 gross profit on each car), the above table suggests that investors are betting on massive growth beyond 2014 to justify the current share price.

When a stock is balanced atop towering growth assumptions, it is extremely sensitive to any reassessment by investors of those assumptions. Furthermore, when there is tremendous uncertainty concerning a company's future, as is the case with Tesla, it doesn't take much to trigger such periodic reassessments -- and earnings typically present investors with a prime opportunity for this. That's exactly what happened with Netflix's third-quarter earnings release: The movie and TV streaming service also has a highflying stock and a CEO that recently warned investors the stock is overvalued. Tesla's vehicles may provide a smooth ride, but investors riding the stock can expect to hit some speed bumps, whether tomorrow or over the next 12 to 24 months.

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9/29/2016 4:35 PM
^DJI $18143.45 Down -195.79 -1.07%
TSLA $200.70 Down -5.57 -2.70%
Tesla Motors CAPS Rating: **