Tesla Earnings: What Investors Need to Watch

Tesla (TSLA 1.85%) has been an incredible investment over the past three years -- the stock is up 1,400%, crushing the returns of the broader market. But with big gains come great expectations, and Tesla has certainly set a high bar for itself.

In this Backstage Pass video, which aired Sept. 29, 2021, Motley Fool contributor Trevor Jennewine discusses the key metrics investors should watch when Tesla announces third-quarter earnings later this month.

Trevor Jennewine: Tesla. Reporting earnings on the 20th, still a few weeks away. But Tesla is the leading manufacturer of electric vehicles, as I'm sure our viewers are well aware.

Through the first half of the year, they captured about 15% market share in terms of electric vehicle sales, and then coming up on this quarter, let me give some context by reviewing their second quarter real quick. In the second quarter, Tesla produced 206,400 vehicles, which was up 151%. Revenue came in at $12 billion, which was up 98%; and earnings per diluted share were $1.02, which is up 920%. And then free cash flow was $2.5 billion, also up over 100%. Strong financial results during the second quarter.

And then, looking at the third quarter, analysts are expecting to see about $13 billion in revenue. A little bit of growth on a sequential basis and 48% growth over the prior year, and then they are expecting earnings per share to come in at a $1.43. And that would be up over 400%, and that would also be Tesla's 9th consecutive profitable quarter as well.

As you can see, the stock price has done quite well over the past year. Tesla is an enormous, over $700 billion company now. The things I'm going to really be looking at when they do announce earnings are the production levels and the deliveries; they've been working on scaling manufacturing capacity at their Fremont factory. They have the Gigafactory in Shanghai up and running, and they're also building two new factories that are supposed to open later this year. There's one in Berlin and another one in Texas. I will be especially interested in management's commentary on how that situation is progressing. They've had to delay the opening in Berlin a little bit. Things have been a little rocky in Europe. But once those factories come online they are slated to start making the Model Y, and I think especially in Europe, they don't have a factory on that continent yet. That'll help localize their business there and hopefully drive continued improvements in efficiency is what management's hoping for.

I'll also be looking at operating margin, and I actually wanted to share a different screen real quick, so I'm going to stop this and share. This is the operating margin on a quarterly basis and on a trailing-12-month basis. Through about the end of the third quarter last year, you can see right here, they finished with a 6.3% operating margin, and they actually said that that was an industry-leading operating margin, which I thought was impressive. That number on a trailing 12-month basis has trailed off a little bit. But in the recent quarter, on a quarterly basis, they were up around 11% again, so just behind Toyota compared to some of these other automakers. I think efficiency is one of the things that management has been very focused on. Elon Musk has said that he thinks manufacturing efficiency will be one of the companies greatest long-term advantages. Definitely paying attention to operating margin, and then the last thing I mentioned, they have the plants in Berlin and Texas that they're going to be hopefully getting up and running by the end of the year.

They plan to start making the Cybertruck in the Gigafactory, Texas. If they have any comments on the Cybertruck or the semi program that's supposed to start-up in 2022, I'm always interested to hear that. This coming Friday, they're going to start rolling out their full self-driving software at the Beta version to more testers. I believe about 2,000 testers currently have access to it, but they're going to be rolling out to a 1,000 new testers per day. Just any comments on how that situation is progressing. We'll be interested to hear what management has to say there. What are your guys' thoughts, anything to add?

Brian Withers: I think it was Q2 and the company was trying to chase the backlog of Model 3, which is their new lowest price model car, and they actually stopped manufacturing their SUV vehicle and their sedan. Have they started back full-fledged production of all of their models now?

Trevor Jennewine: Yeah, all their models are back in production. Let's see, I think I actually, I meant to have mentioned that analysts are forecasting in terms of deliveries. Piper Sandler is expecting about 233,000, which would be up about 67%. Credit Suisse is looking for about 230,000 and so just a little bit lower, around 65%. We'll see, I think it's possible that they come in higher than that number, but even 233,000 would be a record for Tesla.