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Can Decline in Production Hurt Tesla (TSLA) in Q1 Earnings?

Zacks Equity Research

Tesla, Inc. TSLA is scheduled to report first-quarter 2019 earnings on Apr 24, after the market closes. In the last reported quarter, this electric carmaker delivered a negative earnings surprise.

In the trailing four quarters, the company missed estimates twice and beat on the other two occasions. The Zacks Consensus Estimate for yearly earnings has declined 5.9% to $5.92 over the past month.

In the past six months, shares of Tesla have underperformed the industry it belongs to. Over this period, shares of the company have dipped 10.2% against the industry’s growth of 1%.

Let’s see, how things are shaping up for this announcement.

Tesla, Inc. Price and EPS Surprise


Tesla, Inc. Price and EPS Surprise | Tesla, Inc. Quote

Factors Influencing This Quarter

In first-quarter 2019, Tesla’s vehicle production and delivery numbers registered sequential declines of 10.9% and 31%, respectively. The company managed to produce around 77,100 vehicles — consisting of 62,950 Model 3, and 14,150 Model S and X. Out of the total delivered figure of 63,000 units, Model 3 accounted for 50,900 units while Model S and X were 12,100.

During the quarter under review, this electric automaker struggled with Model 3 deliveries to Europe and China, owing to longer transit time. Amid a slowdown in demand in North America, the company began delivering new Model 3 units to markets in China and Europe in January and February.

Apart from managing transit time for international shipments, Tesla has to compete with automakers in Europe that are launching several versions of electric vehicles. All these are likely to have an adverse impact on Tesla in the soon-to-be-released quarter. In spite of all such challenges ahead, the company did not lower the delivery guidance for 2019. For the year, it changed the prior guidance of 360,000 vehicle deliveries to 400,000 units.

The Zacks Consensus Estimate for Total Automotive revenues for the soon-to-be-released quarter is pegged at $5 billion. The company registered Total Automotive revenues of $6.3 in fourth-quarter 2018.

Earnings Whispers

Our proven model does not conclusively predict that Tesla is likely to beat on earnings in this quarter. This is because, a stock needs to have a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Tesla has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Tesla currently carries a Zacks Rank #4 (Sell). This combined with its Earnings ESP makes surprise prediction difficult.

Note that we caution against stocks with a Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few auto stocks worth considering, comprising the right combination of elements to come up with an earnings beat this time around:

BorgWarner Inc. BWA has an Earnings ESP of +3.49% and a Zacks Rank of 3 at present. The company is expected to release financial results for first-quarter 2019 on Apr 25.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Cummins Inc. CMI has an Earnings ESP of +1.88% and a Zacks Rank #3 at present. The company’s financial results for first-quarter 2019 are slated to release on Apr 30.

General Motors Company GM has an Earnings ESP of +5.61% and a Zacks Rank #3 at present. The company’s financial results for first-quarter 2019 are slated to release on Apr 30.

Zacks' Top 10 Stocks for 2019

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