Trading Analysis: Tesla Motors Earnings Preview
By Colin Cieszynski, CFA, CMT, Chief Market Strategist and Jasper Lawler, Market Analyst, CMC Markets
Tesla Motors report quarterly earnings Wednesday evening after the close of US markets. The upscale electronic car company is expected to report its biggest quarterly number of vehicle sales ever by a wide margin.
Demand continues to outstrip supply with founder and CEO Elon Musk leaving Tesla well positioned as the leading-edge company in the space of electronic vehicles. Tesla operates in the luxury car-space and its relative lack of competition to-date has enabled it to maintain high prices. Gross profit margins have improved as high selling prices have been met with reduced costs from production efficiencies.
There is no evidence yet to suggest Tesla’s profit margin is about to diminish but at some point, new entrants such as GM and Volkswagen may force more pricing competition.
Earnings per share is expected to dip in Q4 as Tesla invests more in R&D. As seen by the likes of Jeff Bezos at Amazon, shares could suffer if this becomes a long running trend.
Musk worried investors last month when in an interview he voiced disappointment at initial sales in China. There is a lot of room for growth in the growing US market so sales in China don’t need to fire right of the starting blocks but the eventual expansion into China is baked into share prices. More specific forecasts on China sales may soothe shareholders worried about growth inside China.
Still, order flow results and company insights remain important. While Tesla has capitalized on interest in alternative energy and cars, the crude oil price crash from above $100/bbl last summer toward $50.00 today raises questions like: Will Tesla remain the trendy option of choice, or could some of its potential customers migrate back to traditional gas guzzling sports car options? Are Tesla’s customers so wealthy that they don’t care about fuel costs?
Tesla shares peaked in September at $290 and have corrected quite steeply loosing over a third in value by the end of December. Expectations have grown leading into this earnings report and prices have traded back above $220.
Breaking News: After this blog was initially published, reports emerged indicating that Tesla only sold 120 cars in China during Q4 way below expectations due to misconceptions about charging (and whose fault would that be?). Reports also suggest a management shakeup for the China business could be coming.
More Breaking News Tesla has delayed its conference call to 7:30 pm ET from 5:30 pm ET, will report its results at 5:00 pm ET today, which I also think is delayed from the usual 4:00-4:30 pm ET.
Tesla is expected to report adjusted EPS of $0.31, down nearly 4% from last year. Sales are expected to fist 61% from last year to $1.22B. Last quarter, Tesla earned an adjusted $0.02 per share slightly above the breakeven the street had expected on sales of $932M.
Tesla trades as a classic momentum growth stock with a forward P/E of 133x running way above its 50% forecast growth rate. This means that generally on earnings reports Tesla needs to deliver on both earnings and guidance to keep up its share price.
Data Source: Bloomberg L.P.