Tesla Motors (TSLA +0.52%) is set to report its second-quarter earnings results after the market closes on Thursday. The electric-car maker has trounced analyst estimates for the past five consecutive quarters. In fact, during the second quarter of fiscal 2013, Tesla beat the Street's estimates by an astounding 216%. Unfortunately, history is not likely to repeat itself this time around because of three distinct headwinds facing the company.
Ballooning operating expenses
Tesla is furiously building out its network of Supercharger stations and opening new stores and service centers around the globe. But all of this growth comes at a cost. Total operating costs in Tesla's first quarter were $1.99 billion, up from just $1 billion during the same period a year ago.
A Tesla Supercharger station. Source: Tesla Motors.
That number will likely increase to more than $2 billion in Tesla's fiscal 2014 second quarter because the company ramped up research and development funding for the anticipated launch of its Model X crossover and continued to open new facilities around the world.
Tesla CEO Elon Musk warned investors in May that the company's operating expenses were expected to balloon sequentially by as much as 30% for research and development and 15% for selling, general, and administrative expenses. Investors should expect costs to continue climbing in the quarters ahead as Tesla aggressively invests in its future.
Additionally, the EV maker is already on track to spend between $650 million and $850 million this year investing in key areas, such as increasing production capacity, continuing the worldwide build out of its store, service center, and Supercharger footprints, developing the Model S and Model X, and starting the construction of its battery Gigafactory.
Lithium-ion battery constraints
Battery cell supply constraints remain Tesla's biggest problem to date. Tesla's ability to source quality parts from its suppliers in a timely manner is critical to the company's long-term success -- at least until it begins producing its own lithium-ion components in its planned Gigafactory. In May, Musk warned that battery supply would restrict Tesla's production in the second quarter. Fortunately, management is confident that supply constraints will improve in the second half of the year.
Tesla amended its existing supply agreement with Panasonic in October 2013. This should help remedy the automaker's near- to medium-term lithium-ion-battery needs, according to the company's recent 10-K. However, the company will need significantly more battery cells by 2017, when Tesla plans to begin production of its Model III mass market EV. As a result, Tesla warned that its supply arrangement with Panasonic might not be able to meet its long-term needs.
Ultimately, this underscores the importance of Tesla's plan for the $5 billion Gigafactory in meeting its long-term production targets.
Crimped delivery numbers
A quarterly gap between how many cars Tesla produces and the number that are actually delivered is the third headwind the company likely faced in the second quarter. Tesla expected to manufacture between 8,500 and 9,000 Model S cars in the three-month period. However, the EV maker only expected to deliver about 7,500 EVs. This is important because Tesla only recognizes income once a car has been delivered.
The discrepancy was caused by "the growing pipeline of in transit cars to Asia and Europe that have been built-to-order for customers" in those markets, according to Tesla. Similar to supply constraints, management expects this quarterly gap to decline in future quarters.
What it means for investors
For long-term investors, increasing operating expenses, battery supply constraints, and crimped delivery numbers should not be too worrisome. While these things will certainly pressure Tesla's second-quarter earnings, they are issues the automaker should have resolved not too far down the road.
