Electric car-maker Tesla Motors (TSLA +6.44%) is scheduled to report third-quarter results on November 3. The earnings announcement, along with the conference call following it, are particularly important. Scheduled more than a month into Tesla's imperative fourth quarter, the report will provide investors a key window into a critical time for the company.
Here are some of the items for investors to watch when Tesla releases its third-quarter results.
Tesla Model S. Image source: Tesla Motors.
Show me the money
As Tesla continues to spend heavily on investments in its future, including spending related to capacity expansion, the construction of its Gigafactory, Model X production, and Model 3 development, the company is in dire need of higher levels of cash flow.
Indeed, Tesla needs its cash flow from operations to begin to exceed its capital expenditures so the company can prove to investors it can support its own investments without requiring a consistent stream of new capital from financing and equity dilution. During the company's second quarter, cash and cash equivalents fell by $359 million sequentially, to $1.15 billion, highlighting Tesla's need for free cash flow. The decrease was driven primarily by $405 million in capital expenditures.
Tesla chief financial officer Deepak Ahuja said during the company's second-quarter earnings call that the company would be free cash flow positive -- the point at which a company's cash provided by operating activities exceeds its capital expenditures -- by Q1. Look for management to maintain this stance when it reports third-quarter results.
Tesla energy
During the company's second-quarter earnings call, Tesla CEO Elon Musk said Tesla was already producing Tesla energy products in Fremont. With the company citing substantial customer interest in Tesla's energy products -- so much so that Musk believes the company could sell out of production all the way through 2016 before the year even begins -- the business could be a boon for revenue growth, and even accretive to earnings within the next 12 months if Tesla is able to ramp production.
Tesla Powerwall. Image source: Tesla Motors.
Fortunately, the company is getting close to a meaningful production ramp for its energy business. "We are on track to start production of Tesla Energy products this quarter at our Fremont factory, with a plan to ramp up production in Q4," the company explained in its second-quarter letter to shareholders.
When Tesla reports third-quarter results, look for revenue in its "services and other" segment to grow moderately sequentially, signaling the beginning of Tesla Energy sales. Also, look for an update from management on the company's plans to begin Tesla Energy battery module pack production at the Gigafactory during Q1.
Given that Musk believes energy storage sales could reach a few billion dollars annually by 2017, this business could potentially be a critical component of Tesla's future. Therefore, investors should hope the company remains on track with its plan to rollout these energy products.
Demand
As Tesla continues to grow its Model S sales at about 50%, year over year, investors are wondering at what point the company's ability to ramp production will catch up to its order book for the sedan. Will this finally happen in Q3?
Look for an update from the company on demand for both Model S and the just-launched Model X. The most recent updates on orders for the Model S and X from Tesla are as follows:
- Tesla admits to around 25,000 reservations for Model X
- Model S orders in Europe increased more than 50%, year over year, during Q2
- Model S orders grew 30%, year over year, in the U.S.
- Model S orders in Asia doubled sequentially during Q2
Model X.
For Tesla to continue its current trajectory of fast growth in deliveries, the company will need more of the same for Model S order growth in Q3. And considering the company has finally started initial production of Model X, investors will also be looking for an optimistic report on reservations for the SUV.
The company reports third-quarter results after market close on Tuesday, November 3, at 2:30 p.m. PST. Tesla will host a live conference call to discuss results, and to participate in a Q&A session with analysts.
