Tesla’s second quarter results are upon us and investors should be preparing for what is likely to be a very complicated report.
There are a lot of moving parts, even more than usual for the world’s most valuable auto company and its iconoclast CEO Elon Musk. Figuring out whether the stock is going up or down shouldn’t be that hard, though.
The EV pioneer will report Monday after the close of trading, July 26. Wall Street is looking
(ticker: TSLA) to report about 94 cents in earnings per share from $11.5 billion in sales, according to FactSet. Beating analyst estimates is important, almost necessary, if any stock is to remain stable in post-profit trading. That also applies to Tesla.
There are many factors that will contribute to earnings: the global semiconductor shortage, vehicle price, vehicle gross profit margins and the level of profitability in Tesla’s battery storage business. Ultimately, however, investors will want to see a record in corporate earnings no matter what. That’s what could break stocks out of their recent range.
Tesla reported more than $800 million in operating profit in the third quarter of 2020, and the stock more than doubled to about $860 in the three-month period that followed. But as corporate earnings growth largely stalled in subsequent quarters, stocks have recently fallen from about $860 to about $640. Earnings stagnation also meant inventory stagnation.
The good news for Tesla Bulls is that Wall Street is forecasting a new record: Operating profit is expected to hit $835 million for the second quarter, driven by strong deliveries. In the second quarter of 2021, Tesla delivered more than 200,000 vehicles in one quarter for the first time.
After the earnings are processed, there should be endless discussions between bulls and bears about the quality of the earnings. For example, one way Tesla generates revenue is by selling regulatory credit — which it earns by producing more than its fair share of electric vehicles. The company generated $518 million in credit sales in the first quarter, helping Tesla beat earnings estimates. There is always debate about what the “normal” amount of credit sales is and when those sales dry up. Ultimately, both the bulls and bears expect other automakers to sell their own EVs, cutting off that source of revenue for Tesla.
There is also the issue of Bitcoin. Tesla acknowledged a small gain on its Bitcoin holdings in the first quarter, but the cryptocurrency’s prices have fallen by about half since their April peak. That means there is a chance of a small loss. How investors react is a mystery, but don’t expect Tesla to sell its Bitcoin position. Musk continues to indicate that his company will transact in the cryptocurrency when Bitcoin mining uses more renewable energy.
Investors will also want to know when Tesla’s new plant in Germany and Austin, Texas will begin supplying cars. The Austin plant will build Tesla’s Cybertruck. There will also likely be questions about advancements in Tesla’s driver assistance features — the company recently started selling its driver assistance software as a subscription — and how much money the company could make from its charging network. Musk tweeted this week that Tesla would open up its charging network to other EVs down the road.
All those topics and more should come on the income conference call scheduled for 5:30 p.m. ET on Monday. Year-to-date, Tesla stock has fallen about 9%, lagging behind comparable 17% and 15% gains of the company, respectively.
Dow Jones industrial average.
Still, Tesla stock has seen a strong rally, up about 112% in the past 12 months.
Write to Al Root at firstname.lastname@example.org