What to Look for in Tesla Motors Inc.'s First-Quarter Results Today

It can be difficult to sort long-term business potential using short-term metrics for a company like Tesla Motors. Here are some things to keep in mind while looking at Tesla's first-quarter results later today.

May 7, 2014 at 3:51PM

Model S Photo Gallery
Tesla's Model S charging. Source: Tesla Motors.

Tesla Motors (NASDAQ:TSLA) investors have been along for a wild ride over the last year while its stock has been one of the hottest stories on Wall Street. Tesla shares traded at $55.51 just a year ago, rocketing toward $200 only five months later. The shares subsequently topped $250 before settling back down near $200 over the last two months. I won't even try to guess how Tesla's shares will respond to its first-quarter results, being announced today after market close, but here are some key factors to look for.

Night and day
Just as wild as Tesla's stock price roller-coaster ride is the difference in the company itself between last year's first quarter and this year.

The electric-car maker recorded $68 million in last year's first quarter from zero-emission-vehicle credits that it sold to other automakers. Without those credits, Tesla's automotive gross margin in the first quarter of 2013 was 5%.

Fast-forward to today, the company isn't expected to record any profit from ZEVs and will deliver many more cars at much higher margins. Tesla is expected to post an automotive gross margin around 25% this quarter, and that margin is projected to reach 28% for the full year.

With the company so different from last year, it can be more difficult for investors to balance long-term visions with the short-term metrics that Wall Street seems to emphasize. So here are some of the numbers Wall Street is expecting, as well as the bigger picture for long-term investors.

By the numbers
Analysts surveyed by Bloomberg expect Tesla's revenue to reach a best-ever $704.5 million in the quarter, which would be a 25% improvement from the year-ago level. Analysts anticipate Tesla will report a net first-quarter loss of roughly $25 million, or $0.15 per share. However, excluding some one-time items Tesla is expected to post earnings of $0.07 per share for the quarter. Considering that Tesla is in the early pages of its potential long-term business story, there are many more important figures to look at than earnings per share.

Assembly

Assembly line for Tesla's Model S. Source: Tesla Motors

Production and deliveries
Deliveries will rise over last year's first quarter but will almost certainly fail to top the record of 6,892 vehicles set in the fourth quarter of 2013. Tesla's guidance was for deliveries to reach 6,400 in the first quarter; however, it should be noted Tesla often underpromises and overdelivers.

The reason behind a drop in quarterly deliveries is that sales in China didn't start until last month -- the company is floating 1,000 cars toward China as I write this. As Tesla's deliveries continue to be supply-limited, that's essentially 1,000 deliveries that will be pushed from the first quarter into later quarters.

Model
Graph by author. Projections based on first-quarter and full-year guidance.

Production of Tesla vehicles today is just as important as delivery figures. Tesla expects to deliver 35,000 Model S vehicles this year, which is a lofty 55% increase over last year. In the fourth quarter of 2013, production reached 600 vehicles a week; Tesla expects to reach 1,000 cars per week by the end of this year. I'd like to see Tesla report a production rate of at least 700 in the first quarter.

Model X
Also key will be details regarding its Model X. Tesla's SUV could be an even bigger portion of future company sales than the Model S sedan. That's an exciting prospect, as deliveries are expected next year, but the beginning of Model X sales is also coming later than initially planned.

Details regarding how far along Tesla is in completing the Model X and beginning production will be among the most anticipated comments from management in the first-quarter conference call. Tesla expects to have production design prototypes on the road by the end of this year. The speed at which analysts can predict Model X sales before it hits the market will have a direct effect on company growth estimates and how the stock is traded in the short term.

Investors should also look to Tesla's operating expenses in the first quarter. The company forecasted that operating expenses would rise 15% in the quarter as research as development for the Model X accelerated; if expenses balloon far past 15%, it could be a red flag signaling things aren't as on track as investors would hope.

Investors will also be all ears for any new information regarding the battery Gigafactory. Management explained during the last quarterly call that Tesla's Gigafactory and the Model X would proceed nearly in unison. It's obviously a hugely important part of Tesla's business plan -- the factory would reduce battery-pack costs by at least 30%. I don't expect to hear anything groundbreaking on this topic, but any additional information about the factory location or potential partners would be welcome news for investors.

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Daniel Miller has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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