Electric car-maker Tesla Motors (NASDAQ:TSLA) will report third-quarter results after market close on Wednesday. As one of the hottest growth stocks, the report and the earnings call to follow will certainly be closely scrutinized. Here are the most important items for investors to watch.
Earnings and revenue
Analysts, on average, expect Tesla to report non-GAAP sales of $889 million, up 47% from the year-ago quarter on growth in Model S deliveries. Analysts expect Tesla to report a loss of $0.01 for non-GAAP EPS, down from a $0.12 profit in the year-ago quarter.
Non-GAAP revenue and EPS is a better representation of the state of Tesla's business since it includes the revenue that is deferred due to lease accounting for GAAP revenues.
Tesla's lack of consistent profitability is due to the company's outsize operating expenses. In Tesla's second quarter, for instance, Tesla spent $108 million on research and development and $134 million on selling, general, and administrative expenses. This puts R&D and SG&A at 13% and 16% of revenue, respectively. As the company grows its sales over the long haul, investors expect these costs to decrease as a percentage of revenue. But considering all the growth opportunities ahead of Tesla, it's in shareholders' best interest right now that the company continues to invest as much as possible in R&D and SG&A in order to capture this growth.
Gross profit margin
One of the reasons Tesla is able to spend as aggressively as it does on R&D and SG&A is due to its surprisingly robust gross profit margin. The company's non-GAAP automotive gross margin in Q2 was 26.8%. While Tesla expects the current gross margin to remain at this level in Q3, it is predicting the metric to reach 28% by year-end. For an industry stricken by high levels of competition, Tesla's lucrative gross profit margin is impressive -- even if it is a niche player selling high-end vehicles.
Look for Tesla to maintain its guidance for a 28% gross profit margin in Q4.
Perhaps the most important metric to watch when Tesla reports earnings will be vehicle deliveries. Year-to-date, Tesla has sold just over 14,000 vehicles. Guiding for over 35,000 deliveries by the end of the year, Tesla would need to sell 21,000 vehicles in the second half of 2014 to meet its goal.
What should investors expect in Q3? Tesla guided for 7,800 deliveries in the quarter. Considering the company's guidance has been within 100 vehicles of actual results in the past two quarters, the Street is likely expecting deliveries to be in line with Tesla's guidance.
7,800 deliveries would be up only slightly from the 6,457 and 7,579 vehicles delivered in Q1 and Q2.
In order to meet its target of delivering over 35,000 vehicles by the end of the year, investors should look for Tesla to guide for 13,200 deliveries or more in Q4.
With more demand than it can handle, the volatility in Tesla's quarterly deliveries is mostly a reflection of the company's ability to ramp up supply and the timing of its emphasis on delivering to particular regions.
Tesla's third-quarter results will be posted here, likely within 15 minutes of market close on Wednesday. Investors can tune into Tesla's live quarterly earnings question-and-answer session at 5:30 p.m. EST at the same link.
Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends and owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.