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Tesla, Inc. Earnings: Mark Your Calendar

By Daniel Sparks - Updated Oct 20, 2017 at 12:42PM

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Investors will turn their attention to Tesla's cash flow, Model 3 production, and guidance.

Electric-car maker Tesla (TSLA 1.24%) certainly has investors' attention lately, but not necessarily for good reasons. When it announced its third-quarter vehicle deliveries earlier this month, production of its important Model 3 was far below the company's target for the quarter. And more recently, Tesla fired between 400 to 700 employees as part of a performance review. With news like this, investors will undoubtedly scrutinize the company's third-quarter financial results when they are reported.

If you're an investor interested in Tesla, you'll want to mark your calendar for Wednesday, Nov. 1, the date those results will be announced. Ahead of the earnings release, here's an overview of some of the hot areas of Tesla's business worth checking on.

Model S interior and center console touchscreen

Tesla Model S. Image source: author.

Cash flow

From a financial health standpoint, one of the most important metrics to watch will be Tesla's operating cash flow. In its most recent quarter, Tesla lost $200 million in operating activities, worse than its $70 million loss from operations in the first quarter. Until Tesla's operating cash flow can turn positive, the company will need to continue raising capital through debt or equity.

In August, Tesla issued $1.8 billion worth of senior notes to continue funding its operations and rapid expansion ahead of its Model 3 production ramp-up.

In Tesla's second-quarter shareholder letter, management said it believes the Model 3 is on its way to being a positive cash contributor to its business, forecasting the vehicle will boast a non-GAAP gross margin in 2018 of 25%.

Model 3

After Tesla totally whiffed on its third-quarter Model 3 production, investors should look for more insight into how the vehicle's production is faring. In its second-quarter shareholder letter, Tesla had said it was "confident" it would produce 1,500 Model 3 units. But it ended up producing only 260 units. "Production bottlenecks" were the primary reason for the worse-than-expected Model 3 production, Tesla said.

A white Model 3

Model 3. Image source: Tesla.

"Although the vast majority of manufacturing subsystems at both our California car plant and our Nevada Gigafactory are able to operate at high rate, a handful have taken longer to activate than expected," Tesla explained. But Tesla seemed confident that Model 3 production problems were only temporary. "We understand what needs to be fixed and we are confident of addressing the manufacturing bottleneck issues in the near-term."

When Tesla reports its third-quarter results, investors should look for more of an explanation about what went wrong with Model 3 production, as well as an update on how Model 3 production is going now.

Guidance

Any guidance on vehicle production or deliveries could prove to be the most interesting item from the report. In Tesla's second-quarter shareholder letter, management was incredibly optimistic about its Model 3 production ramp-up. The company said it expects to achieve a weekly production rate for Model 3 of 5,000 units before the end of the year. In addition, Tesla maintained its outlook for building a total of 500,000 vehicles next year, up from an annual run-rate of just over 100,000 vehicles today.

Tesla vehicle production at the company's factory in Fremont, California.

Tesla vehicle production. Image source: author.

While Tesla has frequently missed production and delivery targets recently, the company has a consistent enough pattern of reporting small misses on big targets for investors to take Tesla's guidance seriously. The big question regarding guidance, therefore, is whether Tesla maintains its aggressive outlook for Model 3 production.

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