Tesla (NASDAQ:TSLA) investors will get a timely update into the company's business this week. The electric-car maker will report its second-quarter financial results after market close on Wednesday, July 24. With the quarterly update taking place during a time of rapid growth for Tesla, investors will be looking to see how soaring Model 3 deliveries are impacting the company's financials.
A number of items will be worth checking on when Tesla reports its results, but three areas will be especially important: Model 3 gross margin, cash and cash equivalents, and management's third-quarter vehicle deliveries guidance.
1. Model 3 gross margin
Tesla's Model 3 gross margin dipped slightly in Q1, falling from "above 20%" in Q4 to approximately 20%. The sequential pullback in the vehicle's gross margin wasn't surprising, as Model 3 deliveries declined 20% sequentially amid challenges with launching the new vehicle in overseas markets for the first time.
In Tesla's second quarter, however, investors should look for an improvement in Model 3 gross margin since the vehicle's deliveries surged 52% sequentially to a new quarterly high of 77,550 units. Notably, Tesla said in its second-quarter update on vehicle deliveries that it saw efficiency gains during the period, suggesting a gross margin improvement is likely.
"In addition, we made significant progress streamlining our global logistics and delivery operations at higher volumes, enabling cost efficiencies and improvements to our working capital position," Tesla explained.
But if Tesla's Model 3 gross margin does improve sequentially in Q2, it may only be a small improvement. Sales from the introduction of Tesla's cheaper, standard-range Model 3 at the end of Q1 could offset some improvements in gross margin achieved from higher delivery volumes.
2. Cash and cash equivalents
A $920 million bond repayment during Q1 and the costs from having a higher number of vehicles in transit amid Tesla's overseas expansion weighed on the company's cash position during the period. Its total cash and cash equivalents fell from $3.7 billion at the end of Q4 to $2.2 billion at the end of Q1.
Tesla's cash position should improve significantly in Q2 since the company raised $$2.7 billion of capital during the quarter by offering both debt and equity. In addition, management's forecast for positive free cash flow in Q2 bodes well for the metric.
3. Vehicle deliveries guidance
Last but certainly not least, investors should look for management's guidance for third-quarter vehicle deliveries. With Tesla announcing another price cut for its vehicles earlier this month, there's reason to wonder whether demand going into the second half of the year is as robust as management had hoped it would be.
In its second-quarter update on vehicle production and deliveries, Tesla said an increase in its order backlog going into Q3 meant the company was well positioned to grow deliveries during the quarter. Will management maintain this outlook?
Stay tuned for Tesla's quarterly update on Wednesday.