In a Fool Live segment recorded just before Tesla's (NASDAQ:TSLA) earnings report last week, "The Wrap" host Jason Hall and the Fool's contributing senior technology specialist Daniel Sparks took a look at key areas for investors to focus on when the automaker reported third-quarter results. In addition, Daniel explained why the key narrative for Tesla stock is the underlying rapid growth in its business.

This video was recorded on Oct. 20, 2020.

Transcript:

Jason Hall: Daniel, I know people want to hear a little bit about Tesla. Let's check in on what's going on there. What are you looking to hear from Tesla when it reports in the next couple of days?

Daniel Sparks: Yeah. Tesla tomorrow after close. So that'll be interesting. As always, they've already reported their quarterly deliveries. They always do that a few days after quarter-end. So we know it's going to be a big quarter year-over-year -- record deliveries by far, year-over-year growth of 43 percent and it was up sequentially 53 percent. So obviously, the sequential growth there is because Fremont factory was shut down for half the quarter last period.

So what I think we're going to be looking at though, as usual, when Tesla reports earnings is investors like to check in on the growth tale because the stock is valued for so much of the future. One of the ways I'm going to be doing that is to see what management is saying about guidance for vehicle deliveries and demand for its cars. Of course, the energy business and all that, it's very important. But just headline figures, those are some of the things that we'll be looking at because it represents such a huge portion of the thesis for the stock.

So just a little bit of background going into 2020, Tesla had guided for 500,000 vehicles this year. Which was up, I think from about 368,000 -- somewhere around there -- in 2019. So they expected some big growth. A lot of that was going to come from the Model 3, continued growth there -- and then the introduction of the Model Y in March. Then they suspended that guidance during the COVID-19, during the heat of the shutdowns -- when factories were shut down. They actually reported earnings while it was shutdown. So they suspended it. But then they reinstated that guidance.

Now, they say they're back on track. But they're going to need another enormous sequential jump in fourth-quarter deliveries to be able to hit that 500,000 sales. So it's not totally in the bag. But if they guide, and they say they can still hit this number, it's really going to signal two things. That the progress at their factories is really ramping up. Which they've got a lot going on. They got Berlin, they got China, they got product line expansions, production line expansions here at Fremont. So they're really ramping up. So it's going to signal that confidence in their manufacturing capability, which by the way, Tesla has really gone from someone who is not very good at manufacturing five-years ago to a very good at ramping up new product lines. We've seen that in both with Tesla Energy and the Model Y very recently, and then the Shanghai factory. So that's what I'm going to be looking at. Will Tesla reiterate the 500,000 guidance? Maybe in the commentary, we can find out how demand is doing. I'm not too worried about demand, I think it kind of grows organically with deliveries. But yeah, that's what I'm looking for.

Jason Hall: They're sure got a pretty big bang on their marketing dollar, don't they? The company doesn't spend a penny on marketing.

Daniel Sparks: You're right.

Jason Hall: They get millions of free advertising on Twitter every single day.

Daniel Sparks: Yeah. I think it's not that orders are always far in advance of production, but it's really that demand grows with sales as more cars get out there and show their neighbors. People haven't really tried it and customers sell the cars. So that's why I'm not necessarily worried about it. But there could always be temporary blips in the demand tale and it'll be interesting to see how this one plays out.

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