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Tesla Earnings: What to Watch

By Daniel Sparks – Apr 28, 2020 at 6:31AM

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With the electric-car maker's stock more than tripling over the past 12 months, expectations are sky-high.

This week is packed with earnings reports from many popular companies. But one report is likely to generate more interest than most: electric-car maker Tesla's (TSLA -1.11%). The automaker has seen its stock soar this year, even as the overall market has fallen. Shares of the growth stock are up 90% year-to-date and 240% over the past year.

When the automaker reports its latest quarterly results on Wednesday, investors will be watching to see whether or not the fast-growing electric-car company lives up to the Street's high expectations. Further, investors will look for management to provide an update on how well the company is coping with the impact of COVID-19.

Ahead of Tesla's earnings report, here's a look at some key areas investors may want to check on when the results are posted.

The interior of a Tesla Model 3

Model 3. Image source: Tesla.

1. Free cash flow

One reason Tesla's stock has soared so sharply recently is because the company is finally proving it can grow rapidly while being profitable. Tesla became profitable on a GAAP basis during the second half of 2019 and generated about a billion of free cash flow for the entire year. The company crossed over into profitability even as it ramped up production of Model 3 and built a factory in China.

For Q1, investors should look to see if Tesla continued to generate positive free cash flow. The company said in its fourth-quarter update that it expected to remain free cash flow positive with possible exceptions around the launch and ramp of new products. Therefore, with Tesla's Model Y crossover coming to market during Q1, this could mean the automaker wasn't able to breakeven on a free cash flow basis. On the other hand, however, Tesla had a tailwind of a 40% year-over-year increase in vehicle deliveries during the period.

A person driving a blue Tesla Model Y

Model Y. Image source: Tesla.

2. Model 3 production rate in China

Another area worth checking on is the progress Tesla has made at its new factory in Shanghai, China. The factory came online in Q4 and was still ramping up production volumes when Tesla reported its fourth-quarter results earlier this year.

Tesla had said in its fourth-quarter update that it had the manufacturing equipment at the factory to enable a production rate of 150,000 Model 3 vehicles annually. Investors should look to see how close Tesla is to achieving this production rate, which translates to about 2,900 vehicles per week.

3. Vehicle deliveries guidance

Finally, given the fact that Tesla has had to temporarily shut down its factory in California due to COVID-19, investors should look to see if management updates the company's full-year outlook for vehicle deliveries.

At the beginning of 2020, Tesla had said it expects total deliveries to "comfortably exceed 500,000 units." But given the unexpected challenges that surfaced from the coronavirus, it wouldn't be surprising to see the company reduce its outlook.

To see how Tesla performed in Q1 and what management expects for Q2 and beyond, tune into the automaker's earnings report after market close on Wednesday, April 29.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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