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Earnings Could Bring an Upside Surprise in Tesla Stock

Will Healy

Tesla (NASDAQ:TSLA) is scheduled to announce its quarterly earnings Wednesday after market close. Steadily falling estimates have weighed on TSLA stock in recent months. Now, earnings will cap off an event-driven week for Tesla as the company hosted its Investor Autonomy Day.

TSLA: Earnings Could Bring an Upside Surprise in Tesla Stock

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So far, TSLA stock has not reacted well to some of the claims of CEO Elon Musk. However, with all of the negative news in recent months, low expectations could set up an upside surprise in Tesla stock.

TSLA Stock Earnings Poised to Return to Losses

For the first quarter, analysts expect a quarterly loss of 69 cents per share for the battery company. This would come in higher than the same quarter last year when the company lost $3.35 per share. Still, for a company aiming for sustained profitability, it means a return to losses for now. Wall Street also forecasts revenue of $5.33 billion. If this holds, it will represent an increase of 56.2% on a year-over-year basis. TSLA reported $3.41 billion in revenue in the first quarter of 2018.

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Barring a surprise, Tesla looks poised to report a loss after two profitable quarters. It has faced a challenging year as the EV subsidy looks set to phase out due to the rising production numbers from both Tesla and GM (NYSE:GM). The company also faces increased competition other large manufacturers in the EV market.

Then there is Mr. Musk. Investors had started to get used to his antics. However, the company held its Investor Autonomy Day Monday in Palo Alto. At the event, Mr. Musk showed Tesla’s driverless vehicle technology. He also announced that the company would have over one million Tesla robo-taxis on the road by next year. That goal might seem ambitious seeing as the company produced about 350,000 cars in 2018. However, he hedged on that promise saying, “he’s missed the mark before.”

Mr. Musk also doubled down on the bold claims, saying that within three years, owning anything but a Tesla would be “financially insane” and compared having other cars to “owning a horse.” Wall Street seemed unimpressed with his predictions as TSLA stock fell by 3.85% in Monday trading.

The Speculative Case for TSLA Stock

I need to see more before I buy some of these claims. However, I see a case for buying TSLA stock before earnings, at least for those who have money for a speculative play.

Yes, Mr. Musk’s personality breeds uncertainty. Also, Tesla stock has fallen as consensus estimates for the previous quarter fell. Three months ago, consensus estimates stood at a profit of $1.28 per share. With analysts now estimating a 69-cent-per-share loss, feelings have changed.

However, this has taken expectations so low that any better-than-expected news could turn into a catalyst. Moreover, even as the equities of GM and Ford (NYSE:F) rose, TSLA stock has lost more than 30% of its value since the middle of December. Its price has now fallen close to the lows the stock saw last October. If the high $240s per share range represents a double bottom, TSLA could easily bounce back.

The Bottom Line on TSLA Stock

Though TSLA stock faces deep uncertainty, low expectations may set the equity up for a bounce following earnings. Since the last earnings report, Tesla stock has fallen as hopes for sustained profits have turned back to losses, at least for now. Moreover, at Mr. Musk’s Investor Autonomy Day, many seemed skeptical of his claims.

Nonetheless, expectations have fallen so low that they have nowhere to go but up. Moreover, the stock looks poised to retest the lows of last October. Hence, one could make an argument for a speculative long bet. Admittedly, if TSLA stock falls into the mid-$240s, this bullish thesis falls apart. Still, if the near-term lows hold, TSLA could see a dramatic reversal.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.

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