Please ensure Javascript is enabled for purposes of website accessibility

Tesla Earnings: What to Watch

By Daniel Sparks – Oct 23, 2018 at 11:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Can soaring Model 3 deliveries help turn Tesla's big losses around?

Mark your calendar. With just two days' notice, electric-car company Tesla (TSLA 3.94%) released the date of its third-quarter earnings call on Monday evening. The report is scheduled for after market close on Wednesday.

Investors and the media will be watching the quarterly update closely. Tesla has been importantly aiming to become profitable by its third quarter -- a big change from the $743 million the company lost in its second quarter. 

Ahead of Tesla's third-quarter earnings release, here's a look at some of the items investors should watch on Wednesday.

A red Model 3 driving at sunset

Model 3. Image source: Tesla.

Earnings per share

Going into its second quarter, Tesla's priorities were to ramp up production and deliveries of its Model 3 enough to achieve cost efficiencies that would enable the company to become profitable. Specifically, Tesla said in its second-quarter shareholder letter that it expected to achieve GAAP profitability in both Q3 and Q4.

To become profitable, Tesla said it would need third-quarter Model 3 production to be between 50,000 and 55,000 units and Model 3 deliveries to "exceed" this level. Already announcing Model 3 production and deliveries for the period earlier this month, Tesla did exactly this -- with third-quarter Model 3 production and deliveries coming in at 53,239 and 55,840 units, respectively. 

A bar chart showing Tesla's quarterly vehicle deliveries by model

Data source: Tesla second-quarter vehicle delivery update. Chart by author.

Achieving its Model 3 production and delivery target doesn't guarantee profitability during Q3, but it does make a good case for its likelihood.

Cash and cash equivalents

Another key item investors will want to watch when Tesla reports its third-quarter results is its cash and cash equivalents. Amid Tesla's capital-intensive Model 3 production ramp up, the company's cash and cash equivalents have dwindled from $3.4 billion at the end of its fourth quarter of 2017 to $2.2 billion by the end of Q2. 

For its third quarter, Tesla forecast improving Model 3 production and deliveries would help the trajectory of the automaker's cash and cash equivalents balance reverse. With Model 3 deliveries soaring 203% sequentially, investors will get to see whether or not such an uncanny increase in the vehicle deliveries pays off in an improved cash position or not.


Finally, it will be worthwhile to tune into Tesla's guidance.

First and foremost, investors should look for Tesla to guide for profitability and positive cash flow in Q4 since Model 3 production and deliveries are expected to increase further during the period.

But investors should also look to the company's outlook for vehicle deliveries. While Model 3 production has increased sharply recently, management believes it can eventually produce and deliver 10,000 Model 3s per week -- a big jump from the 5,000 units per week rate the company ended its third quarter at. Look for Tesla to guide for a significant increase in Model 3 deliveries in Q4 -- somewhere in the ballpark of 65,000 units or more.

Tesla reports its third-quarter financial results after market close on Wednesday, Oct. 24.

Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.