Tesla (TSLA -3.40%) is set to report second-quarter earnings after the bell on Wednesday, Aug. 1.
It might be the most eagerly awaited earnings report of the quarter. Tesla bears and bulls -- two vocal groups in sharp opposition on social media -- are each hoping for news that confirms their preconceptions and drives a big stock-price move.
Your humble Fool doesn't quite fit into either of those categories. I have thought for years that the most bullish expectations for Tesla are wildly unrealistic, and that the stock is overvalued. But I have also given the company plenty of credit for having made it this far in a brutal business: Tesla may not dominate the auto business, but entering it is harder than most investors realize.
If that more or less describes you, you're in the right place. Let's take a look at what might be realistic to expect when Tesla reports, and at the big questions that Tesla's earnings report will (hopefully) answer, at least for now.
How deep is the Model 3 order pipeline? That's one of several big questions we hope Tesla will answer during its earnings report. Image source: Tesla, Inc.
Digging into Wall Street's expectations
Even the Wall Street pros have sharply divergent views. The consensus, as reported by Thomson Reuters, is that Tesla will report a loss of $2.81 per share on revenue of $3.97 billion. A year ago, it lost $1.33 per share on revenue of $2.79 billion, so the consensus view is that Tesla will post a much bigger loss on considerably larger sales.
That Tesla's auto sales grew significantly from a year ago isn't really in dispute: Tesla delivered 40,740 vehicles in the second quarter, up from 22,206 a year ago -- a growth rate of 83%. But individual analysts' estimates for revenue range from $3.38 billion to $4.69 billion, on what appear to be differences in assumptions around average transaction prices and Tesla's likely revenue from energy storage and services.
The analysts' estimates for Tesla's loss also cover a wide range, from a loss of just $1.71 per share to a steep $3.44. I suspect the different views are a result of sharply different answers to one big question: How much did Tesla have to spend to reconfigure its Model 3 production line on the fly, after its attempt at heavy automation didn't work out?
Three things to watch for
1. How much cash does Tesla have left?
As of the end of the first quarter, Tesla had $2.67 billion in cash and another $653 million in accounts receivable -- but it also had $2.6 billion in accounts payable and another $1.9 billion in accrued liabilities. (Think of the latter as bills that Tesla is expecting but hasn't yet received.) And $985 million of its cash was made up of customers' deposits -- some large portion of which is refundable.
CEO Elon Musk acknowledged during the first-quarter earnings call that conserving cash would be a priority in 2018. But while Tesla made several moves to conserve cash during the second quarter, including laying off 9% of its workforce, it's likely that the drastic changes it made to its Model 3 production lines consumed quite a bit of cash.
How much cash does it have left? The answer to this question could raise some other, tougher questions.
2. How many reservations and orders does it now have for the Model 3?
As of the end of the first quarter, Tesla said that it had about 420,000 "net reservations" for the Model 3. Tesla delivered 18,440 Model 3 units during the second quarter (and it probably manufactured about 15,000 more in July). But a couple of different analyses have suggested that a significant portion of Model 3 reservation holders have requested refunds -- possibly more than 20%. And it's by no means clear that Tesla has booked enough new Model 3 orders to offset the cancellations.
Tesla will presumably tell us the total number of "net reservations" for the Model 3 as of the end of the second quarter. That number could be bullish, if it appears that new orders are outpacing cancellations -- or bearish, if it exposes weak demand.
Tesla began production of all-wheel-drive "dual motor" versions of the Model 3 during the second quarter. Image source: Tesla, Inc.
3. Will Tesla try to raise more cash this year after all?
Musk has said repeatedly that he doesn't think Tesla will need to raise more cash in 2018 -- and he has specifically said that he doesn't want to raise more cash. That's despite the facts that Tesla has a couple of big debt repayments coming due over the next nine months, and that it appears to have cut future-product development to conserve cash.
Musk's reluctance has led to some speculation in bearish quarters that Tesla can't raise more cash -- that it may be blocked by regulators or banks demanding disclosures or conditions that Tesla doesn't want to meet.
Will Musk relent? Will Tesla explain why it hasn't yet raised cash despite a strong stock price, and what seems like an obvious need? The answers will be important.
The upshot: What this skeptical Fool expects
For what it's worth, your humble Fool's back-of-envelope guess is that Tesla's second-quarter revenue will probably come in right around $4 billion, in line with or a little bit better than Wall Street's estimate, with $3.4 billion or so of that revenue from automotive. I'm assuming that Tesla managed to get good average transaction prices for all three of its models throughout the quarter, and that revenue from services and energy products was roughly consistent with what they generated last quarter.
But I also think that spending to solve Model 3 production issues will be somewhat higher than the average estimate. I think that will in turn make Tesla's loss somewhat greater than the consensus estimate, in the range of $2.90 per share.
Am I right? We'll find out on Wednesday afternoon.
