Dow Drops Ahead of Tesla Motors' Make or Break Earnings Report

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

U.S. stock markets have had a bit of an up and down day on Wednesday, and as of 3:30 p.m. EST the Dow Jones Industrial Average (DJINDICES: ^DJI  ) was down 0.41%. The only notable economic news was the Department of Commerce report that seasonally adjusted U.S. housing starts fell 16% to 880,000 in January, well below the 945,000 estimate. Cold weather likely hurt starts considerably, so don't read too much into a single number. Instead, look to see whether the situation continues or reverses course as the temperature heats up.

One of the more interesting items of the day will be fourth-quarter results from electric car maker Tesla Motors  (NASDAQ: TSLA  ) , which are due after the bell.

Tesla's moment of truth
One of the challenges for a high-flying stock like Tesla is the demand to hit its numbers quarter after quarter to please investors. We know already that Tesla shipped about 6,900 Model S cars in the fourth quarter, which was roughly 20% ahead of its own expectations.  

The Model S will fuel Tesla Motors' growth in the fourth quarter.

The next step will be to see if both supply and demand are going to pick up in 2014. Wall Street is expecting as many as 32,000 Model S vehicles to be shipped in 2014, but a higher figure might be needed to please investors. The company reached a run rate of 27,600 in the fourth quarter, so I'd expect even more growth than that.  

The next number to watch is gross margin. Tesla plans to be one of the highest-margin auto manufacturers in the world with a gross margin of about 25%. CEO Elon Musk has already predicted the company will reach that figure in the quarter it's reporting today. Falling short would be disastrous and so would guidance below 25%. But if Tesla can deliver big margins again investors would be ecstatic.

Finally, look for an update on the Model X, which is due out late in 2014 or early 2015, as well as updates on internal battery manufacturing. The Model X crossover is the next growth engine for Tesla and any delays in its launch would hurt growth potential over the next two years.

As a public company Tesla has so far hit the ball out of the park, beating expectations on all of the factors I mentioned above. But with the stock up nearly 430% over the past year expectations have been raised and Tesla needs to do it again. In a short time we'll find out if Musk can work his magic another time.

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