By Nico Grant
Tesla Motors is expected to announce record third quarter earnings Wednesday, after a blockbuster quarter for production, deliveries and pre-orders.
The California-based electric carmaker announced that it delivered 24,500 vehicles in the third quarter, more than double the deliveries of the same quarter a year earlier, because of high demand for the new Model X SUV and increased production. The company said it is on track to meet its 50,000-unit delivery guidance for the second half of 2016.
The improving production figures could lead to Tesla’s biggest-ever quarterly profit. Analysts polled by Bloomberg expect Tesla to report adjusted earnings per share of 0.02 cents, compared to a loss of $1.06 in the third quarter of 2015, when development costs of the upcoming Model 3 sedan are removed. Revenue is expected to be $2.33 billion, compared to $1.24 billion a year earlier. Adjusted net income could reach $10 million, up from a loss of $149.5 million in the same period last year.
Analysts reduced their earlier estimates for Tesla’s quarterly performance, and fear the automaker’s tepid progress could be undone if Tesla devotes energy to its SolarCity acquisition rather than speeding up Model 3 production.
“They don’t really make money, but lower losses are always better. But this is a bet on the future,” said Ivan Feinseth, the chief investment officer at Tigress Financial Partners, LLC, who has a neutral outlook on Tesla.
Word of record quarterly deliveries has been offset by the company’s recent announcement that new deliveries of Model 3 entry-level sedans would be delayed from 2017 to mid-2018. The company currently has over 400,000 pre-orders for the vehicle. Model 3 pre-order deposits have padded the company’s balance sheet, but finances would be even better if the car was on sale.
On a conference call after earnings are released Wednesday, analysts are listening to hear more on how much Model 3 development is costing Tesla and clarification on when the vehicle will ramp up to full production.
Tesla’s aggressive growth targets and frequent underperformance have polarized investors into sycophants and skeptics. Recently, the latter group has been winning. The company’s stock has been down 16 percent year to date, on concerns the company cannot make its own goals.
So while this is a record-breaking quarter for Tesla’s sales, there are broader concerns weighing on the startup’s future.
Analysts will mine the report to see what Tesla’s decision to put over $8,000 of self-driving technology into all of its cars will mean for the company’s notoriously high margin on each vehicle sold.
The decision to give every car autonomous capacity may could allow the company to take advantage of shared mobility initiatives in the future. But some are skeptical.
“Tesla may never make the leap to a shared mobility model, limiting itself to a niche premium brand with low volumes,” said analyst Adam Jonas, who has a cautious outlook on Tesla, in a research report for Morgan Stanley.
The company says it will get scale with the Model 3, which it plans to sell 400,000 units of in 2018. But Model 3 production delays throw water on that goal.
Nonetheless, Tesla continues to plan its controversial merger with SolarCity, a solar panel manufacturer.
At a time when investors believe the automaker should be focused on Model 3 production, some analysts say the merger would be a distraction.
“They should spend more time as a car company before going into another sector. The merger is probably not a great idea right now. You probably have to get two companies up and running first,” Feinseth said.
Distracted or not, Tesla looks on track to meet its guidance of 80-90,000 vehicles delivered in 2016, making it an important year for Tesla, even without the Model 3.