Electric-car company Tesla (NASDAQ:TSLA) is scheduled to report its fourth-quarter results on Wednesday. Following a recent surprise announcement that the company was laying off 7% of its workforce in a bid to lower costs, the quarterly update will be closely scrutinized. Adding to the pressure are Tesla's need to ramp up production of its Model 3 to improve economies of scale as well as the big debt payment it has due in March.
Will Tesla's results help investor confidence, or will they only heighten concerns about the company's ability to navigate a capital-intensive production ramp of its highest-volume vehicle yet?
Ahead of Tesla's fourth-quarter results, here are three questions investors will be looking for Tesla CEO Elon Musk to address during the quarterly earnings call.
1. Why not raise capital?
One simple question analysts may ask Musk during the call is why the company doesn't simply raise capital to address its growing pains. While cutting costs may address near-term problems, there's no way around the fact that Tesla's workforce will need to continue growing as production and deliveries rise. And since Tesla just expanded Model 3 deliveries to Europe and Asia this quarter, more growth in trailing-12-month vehicle deliveries is inevitable in the coming quarters.
Sure, it makes sense for Tesla to avoid any incremental debt. But why not raise money by selling equity, providing capital to both reduce debt and make strategic investments? Shareholder dilution from selling equity would be easily offset by the benefits of reduced risk in the company's balance sheet and incremental investments in Tesla's growth opportunities.
2. Is there a clear path to a cheaper Model 3?
Musk's recent letter to employees detailing Tesla's plans to cut costs also emphasized the importance of bringing lower-cost Model 3 versions to market. The letter implied that Tesla has maxed out the market of people who can afford its current Model 3 versions, which start at $44,000, in North America.
[W]e need to continue making progress toward lower priced variants of Model 3. ... The need for a lower priced variants of Model 3 becomes even greater on July 1, when the US tax credit again drops in half, making our car $1,875 more expensive, and again at the end of the year when it goes away entirely.
The big question for Musk, therefore, is this: Is there a clear path to cheaper Model 3 versions? Or is the idea of cheaper Model 3s by this summer an elusive target?
3. Where does Model 3 production go from here?
Finally, investors will be looking for some insight on what to expect from Model 3 production in 2019. Tesla had said in its second-quarter update that it was aiming to produce 6,000 Model 3 vehicles per week in late August and then increase production to higher levels over the next few quarters. But Tesla produced under 5,000 vehicles per week, on average, in the fourth quarter of 2018.
Is Tesla now sustainably producing 6,000 Model 3s per week? Even more, what target weekly production rate for the vehicle is Tesla aiming for now?
Tesla reports its fourth-quarter financial results after market close on Wednesday, Jan. 30. It will host a live question-and-answer session with analysts on the same day at 2:30 p.m. PST.