It's difficult to overstate how important Tesla Motors' (NASDAQ: TSLA) second-quarter report is. Sure, the company has already shared its vehicle deliveries for the quarter (which were higher than expected), but Tesla's premium valuation has investors ultra-focused on a range of factors to ensure the company is executing expertly.
While Tesla management's comments on Model X, Gigafactory progress, and growth potential will likely get lots of attention when the company reports second-quarter results on Wednesday, don't overlook these under-the-radar, but still important, metrics.
Tesla's "services and other" segment
At just 5% of sales, why would investors be concerned with Tesla's "services and other" segment? Because the segment is home to two of the company's new businesses.
Tesla explained this new segment during its first-quarter letter to shareholders:
Starting this quarter, our income statement reflects the new classifications of revenues and costs of revenues to segregate our new vehicle business from our other business activities. "Automotive" revenue and related costs now reflect activities related to the sale or lease of new vehicles including regulatory credits, data connectivity and Supercharging. "Services and other" revenues and related costs include activities such as powertrain sales, service revenue, Tesla Energy and pre-owned Tesla vehicle sales.
The two particular revenue classifications in its "services and other" segment that will be worth watching are its April-launched Tesla Energy and pre-owned Tesla businesses.
During Q1, Tesla said its "services and other" gross margin was negative 3.2%, but that it expected it to be "slightly better than breakeven in Q2, and continue to improve to about 5% by Q4." The reason for the expected uptick? "The improvement will come from cost reductions on Daimler powertrains as well as increased sales of Tesla Energy and pre-owned Model S vehicles."
When Tesla reports second-quarter results, look for updates on Tesla Energy and pre-owned Model S sales, as well as an update on whether the company is making progress toward its goal of a 5% gross margin for this segment by the end of the year.
Tesla has been relentless about improving efficiency and reducing costs in production. Combine this effort with soaring sales, and Tesla has been benefiting from a rising gross profit margin. Investors should check in on this metric every quarter.
In Q1, Tesla reported a GAAP gross margin of 27.7% and a non-GAAP gross margin of 28.2%. The company's automotive gross margin, excluding the benefit of ZEV credits, was 26% on a non-GAAP basis, and 25% on a GAAP basis.
For Q2, Tesla guided for its non-GAAP gross profit margin to fall about 100 basis points, to 25%. Expected lower average transaction prices for Model S and a stronger dollar are the key reasons behind the forecast for a narrower gross margin, Tesla said.
Furthermore, look for strong guidance for Tesla's third-quarter gross profit margin, since Tesla was able to respond to the impact of a strengthened dollar with a respective price increase in Europe, timed to affect all Q3 European deliveries.