Tesla reports second-quarter earnings on Wednesday, after the close. CEO and Elon Musk will hold a conference call with analysts after the numbers are released.
We’ll be covering the earnings announcement and the call, so check back.
According to the Wall Street Journal, Tesla is expected to lose money in the quarter — $US117 million net, translating when adjusted to $US0.59 per share.
Last year during the same period, Tesla made $US0.11 per share.
In the second-quarter, Tesla is expected to see a big jump in review, to $US1.17 billion, the Journal reported.
Tesla is spending a huge amount of money right now to expand operations and to develop and introduce new vehicles, as well as bring online a massive battery factory in Nevada and create an energy storage business.
So the combination of increasing revenue and declining profits shouldn’t surprise anyone. Musk and his team already informed the investment community that they’re prepared to spend a “staggering” amount to vindicate the company’s $US33-billion market cap and lofty stock price.
There also won’t be much suspense around how may cars Tesla sold in the quarter. The company has begun reporting deliveries on a quarterly basis (the rest of the industry reports monthly), so we know that 11,507 vehicles made it to customers in Q2, a jump of 52% from last year. Combined with the first quarter, Tesla sold 21,537 vehicles through the first half of 2015.
And that’s where the big question the company has to answer comes in.
The big question
Musk has said that Tesla will deliver 55,000 vehicles this year.
Everyone who follows Tesla is obsessed with whether the Model X crossover SUV will launch on schedule this quarter. But Model X sales aren’t expected to make a major contribution to Tesla’s 2015 goal — probably less than 5,000 vehicles, assuming the launch goes off without any hitches.
That means the pressure is on deliver over 25,000 Model S sedans by the end of the year.
Last year, Tesla was able to build all the cars it said it would — 35,000 — but about a thousand deliveries slipped into the first month of 2015, and that weakness sent Tesla stock into a funk that it has since recovered from.
Investors will want to know if they’re in for a rehash of that script in 2015, so Musk’s comments on the earnings call will be more important than the earnings themselves. If he and Tesla’s leadership can confidently declare that 55,000 deliveries are in their sights, shares may not stage a retreat. But coming through on Model S deliveries while starting to roll Model X SUVs off the assembly line is a tall order. It’s uncharted territory for Tesla, which has effectively spent the past few years building one car.
Tesla may have to run flat out for the next six months to meet its production and sales goals, but 55,000 vehicles still isn’t out of the question. However, if there are any indications of wavering on that target, Tesla could wind up being punished by the markets.
Other aspects of Tesla’s business will be copiously scrutinised on Wednesday — there will undoubtedly be a lot of questions about cyber-security in the aftermath of the hacking of a Jeep sold by Fiat Chrysler, especially since Tesla is the most wired of automakers — but executing on Model S through the remainder of 2015 is the biggie.
It’s worth bringing a bit of history into the picture here. Tesla is building a new kind of car — all electric — and with the Model S and a lesser extent the Model X, aiming for an affluent buyer. The Model 3 mass-market car won’t arrive until 2017, at which point Tesla needs to producing cars much more quickly.
Production doesn’t have to be hard. When Ford introduced the Model T 100 years ago, production ramped up quite rapidly, roughly doubling every year before taking off in year five (1913).
Henry Ford’s mass-production techniques made this possible. So Ford wasn’t ever meaningfully constrained on the production side.
Tesla’s problem has always been production (demand for its vehicles, at least in the US, has historically been robust). This was understandable as the company established the Model S in the market. But now it’s starting to be a conundrum. Musk wants to build half a million cars by 2020. So why is his company still struggling to build 55,000 in 2015?
This is, after all, a car we’re talking about (we understand that Musk’s other company, SpaceX, builds rockets, which are slightly more difficult). Tesla is a startup by the standards of the auto industry, but other car makers seem to be able to assemble vehicles at a fierce clip. General Motors sold 272,512 in July alone.
Within the next 2-12 months, Tesla is going to need to reassure the world it can operate like a typical car company (even it wants to be seen as anything but typical) and meet established production objectives. This is where the auto industry is a pretty simply business: it’s hard to sell cars you can’t build. Musk is sensitive to making customers wait for new vehicles, so it’s reasonable to expect that he’ll be very focused on this challenge for the balance of 2015