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Tesla Earnings Today: Why Guidance Is Key

By Daniel Sparks - Jan 27, 2021 at 12:05AM

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Here's why investors may want to pay particularly close attention to management's projection for vehicle deliveries this year.

Investors' growing optimism for Tesla (TSLA -6.99%) will be put to the test today. After market close, the electric-car maker will report its fourth-quarter and full-year 2020 financial results. Expectations are high. Analysts largely expect rapid revenue growth and a more than doubling of the company's non-GAAP earnings per share on a year-over-year basis. Can the automaker live up to the hype that has pushed shares 26% higher so far this year?

While Tesla's reported financial results will certainly be important, it may be another key figure from the update -- vehicle delivery guidance -- that will ultimately have the greatest impact on investor sentiment. Here's why investors should pay close attention to management's forecast for vehicle deliveries in 2021.

A woman test driving a Model S.

Image source: Tesla.

Why vehicle delivery guidance is key

Though Tesla does dabble in some vectors beyond electric cars, such as energy storage and solar products, the company is still an automotive business at its core. Of the company's $8.8 billion of third-quarter 2020 revenue, $7.6 billion came from Tesla's electric-car business.

While Tesla's reliance on its auto sales is, in and of itself, a key reason to pay attention to management's guidance for vehicle deliveries in 2021, there's another key reason this metric is critical. With the growth stock soaring nearly 700% over the past 12 months, investors are likely expecting more sharp growth in vehicle deliveries this year.

What to expect

Fortunately, there's good reason to believe Tesla will provide an optimistic view for 2021. Indeed, an examination of the company's recent vehicle sales momentum and the company's progress in expanding its production capacity suggests that growth could actually accelerate this year compared to last year.

Consider the composition of Tesla's vehicle sales growth in 2020. While full-year deliveries increased 36% year over year, there was a significant acceleration going into the end of the year. First-quarter deliveries rose 40% year over year. Then Tesla's second quarter was negatively impacted by factory shutdowns due to the COVID-19 pandemic, leading to a 5% year over year decline. In the third and fourth quarter of 2020, however, unit sales rose 44% and 61% year over year.

Tesla's particularly strong growth in Q4 was a testament to both increasing demand for Tesla's vehicles and the company's improving production capacity. Between the beginning and end of 2020, Tesla installed tooling to support manufacturing of an additional 150,000 units per year. Further, Tesla had new production lines under construction at three different factories at the time of its third-quarter update, setting up the automaker well for 2021.

Considering the above factors, investors should look for Tesla to guide for around approximately 750,000 or more deliveries in 2021 -- up from about 500,000 deliveries in 2020 and representing approximately 50% year over year growth.

Tesla is scheduled to report its fourth-quarter and full-year financial results shortly after market close today. In the release, management typically initiates its full-year guidance for vehicle deliveries.

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