What to look for in Tesla Motors Q1 Financials

Tesla (NASDAQ: TSLA) is set to announce its first quarter earnings report after market close on Wednesday, May 4, 2016.

TSLA reported 4th quarter 2015 earnings of $ -0.87 per share on February 10, 2016. This missed the consensus of $ 0.10 by $ -0.97 of the 16 analysts covering this company. Interestingly that turned out to be the end of a dramatic 42% slide which began on January 1^st. Since then TSLA has moved from its lowest point of $141 on that day to roughly $250 per share, a 78% increase in just 3 months. That kind of tells you that TSLA is a stock not for the faint of heart.

The consensus of the 14 analysts covering TSLA for 1st quarter 2016 is a per share loss of $ -.57, with range estimates of: 0.080 | -0.569 | -1.000 (High | Mean | Low).

Based on 20 analysts offering 12-month targets from TSLA, the average price target is $243.95, effectively a zero-move from the current stock price. If you are an “investor” in TSLA stock, the pros tell you that TSLA will not go anywhere in the next 12 months.

So those are the numbers from the pros, but if you still decide that you want to trade TSLA stock, what should you be looking for in the quarterly results and the conference call webcast?

Q1 Vehicle Deliveries

Let’s take a look at a few items from the “Tesla 4^th Quarter & Full year 2015 Shareholder Letter”.

In the “Q1 and Full Year 2016 Outlook” section, Tesla states that “we plan to deliver 80,000 to 90,000 new Model S and Model X vehicles in 2016. […] In Q1, we plan to grow deliveries 60% year on year to approximately 16,000 vehicles”.

We already know that Q1 deliveries did not meet the promised 16,000 units, as that number was actually 14,820, due to “severe Model X supplier parts shortages in January and February” as provided in a Press Release on April 4, 2016. In the same release, “Tesla reaffirms its full-year delivery guidance [of 80,000 to 90,000 vehicles].”

The missing income due to the delayed Model X vehicles delivery will be partially offset by the initial Model 3 “reservations”. It is quite interesting that reservations opened on March 31, 2016, the last day in the quarter, and at least 125,000 of them may be counted as an additional $125M income in Q1. In the end, guidance on vehicle deliveries for Q2 2016 will be one of the deciding factors on where TSLA stock moves post the Q1 report.

Cash Flow and Margins

In the same Q4 Shareholder Letter, Tesla states that “we expect to generate positive net cash flow and achieve non-GAAP profitability for the full-year 2016”, and “we plan to fund about $1.5 billion in capital expenditures without accessing any outside capital.” These are both very aggressive goals, especially in light of the 400,000+ Model 3 reservations, as of the latest disclosed counts. Elon Musk has already tweeted that he is “definitely going to need to rethink production plans”, which likely means that another factory will be needed to produce the Model 3 in a reasonable timeline that will allow delivery to the majority of the current reservation holders. This more aggressive delivery of Model 3 vehicles as originally envisioned will likely require outside capital for building such factory.

Definitely going to need to rethink production planning…

— Elon Musk (@elonmusk) April 1, 2016

Since missing the mark on Model X will impact cash flow for Q1, I would expect questions in the conference call asking if the issues have been resolved, and if the missing Model X numbers can be made up in Q2. While cash flow reversed action to the positive for the first time during Q4 2015, with a strong $179M cash flow from core operations, Tesla needs to prove that this behavior will continue in 2016.

Again in the Q1 Shareholder Letter, Tesla states that “Throughout the rest of 2016, Automotive gross margins should continue to increase. […] Model S gross margins should begin to approach 30% and Model X gross margins should be about 25%.” In Q4 gross margins were 20.9% for the Tesla Model S and even a slight increase in margins will be viewed positively by the market. This is a number that will be greatly watched as Tesla needs to prove that it can eventually deliver 500K+ vehicles / year at a profit. Much of the current valuation of Tesla stock is built on this assumption. Accordingly, a drop in margins for Q1 would be viewed very negatively by the market, at least for the short term.

Summarizing, besides vehicle delivery, cash flow and margins will be the other two drivers of the TSLA stock short-term market action after the Q1 report numbers are released.

Live Q&A Webcast

Tesla management will hold a live question & answer webcast on May 4 at 2:30pm Pacific Time to discuss the Company’s financial and business results and outlook. Live and replay webcast will be available at http://ir.teslamotors.com/eventdetail.cfm?EventID=171952 .

Tip of the Week

Starting with today’s posting I’ll be including a “tip of the week.” This may involve covering a trading concept, or recommending a website with tools or information useful to investors and traders of TSLA.

For this week, I am recommending signing up for the free Basic Membership of TipRanks.  With it you can receive free alerts for 1 stock and 1 expert, which is enough for the ones just interested in TSLA stock. Happy trading.

Disclosure: I currently have no positions in any stocks mentioned, but I may plan to initiate positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Teslarati). I have no business relationship with any company whose stock is mentioned in this article.