Investors are looking for 3 things from Tesla's earnings

  • Tesla will report its earnings on Wednesday, and analysts expect the company to swing to a loss after two straight profitable quarters.
  • CEO Elon Musk said earlier this year that Tesla probably wouldn’t post a profitable first quarter, and markets have been pricing in a loss.
  • Top-line revenue could also reverse an upward trend after breaking through $US7 billion for the fourth quarter of 2018.
  • Tesla might also have sold emission credits to mitigate the loss.
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Tesla will report first-quarter earnings after the bell on Wednesday. After a second half of 2018 in which Tesla finished in the black, Wall Street is expecting a money-losing quarter. The loss has been pegged at anywhere from less than $US1 per share to nearly $US2.

Tesla shares are down about 14% year-to-date, and CEO Elon Musk already said that the company won’t post three straight profitable quarters. Markets appear to have priced in the negative result, as shares are actually up marginally over the past month.

Read more:
Elon Musk thinks it’s ‘financially insane’ to buy a car that isn’t a Tesla – but Tesla wouldn’t be able to make enough cars to meet that demand

With this knowledge, investors should be zeroing in on three key aspects of Tesla’s numbers:

1. Revenue, revenue, revenue

For the fourth quarter of 2018, Tesla brought in more than $US7 billion, a serious top-line surge. Despite Tesla’s volatility on the bottom line, the company is starting to rake in serious money.

That makes sense. Tesla delivered about 250,000 vehicles in 2018. Those vehicles were priced between $US50,000 and $US150,000. Carmakers enjoy huge amounts of cash sloshing through their businesses, and now that Tesla has captured about 3% of the US market share, it can expect the same.

That said, revenue should retreat for the first quarter. The big questions is, “How much?” Investors will want to see if Tesla can regain top-line momentum and start looking forward to $US10 billion quarters.

2. Cash

Tesla paid off a roughly $US900 million convertible bond earlier this year, depleting some of its cash balance, which was north of $US3 billion. The expectation is that operations will send Tesla’s cash reserve down to about $US1 billion by the end of the year, which is skinny for an automaker and could presage a capital raise at some point in 2019 to cushion the balance sheet.

3. Emission-credit sales

Tesla amasses zero-emission-vehicle (ZEV) credits because it sells only all-electric vehicles. (Tesla also racks up non-ZEV credits that are calculated on different metrics than ZEVs.) It can sell these at any time, bringing in millions.

Musk has complained about how various ZEV schemes end up discounting Tesla’s ZEVs, but they still represent a useful revenue source, and Tesla hasn’t really tapped into them since last year. Investors will likely be curious about whether Tesla sold some credits to offset an otherwise more severe loss.

On another note, investors will also be listening in to Tesla’s earnings call after the numbers are announced to assess the interactions of Deepak Ahuja, Tesla’s outgoing chief financial officer, and Zach Kirkhorn, the incoming CFO, who will take over the position toward the end of 2019.

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