Tesla will report fourth-quarter 2016 earnings after the bell on Wednesday. For the record, Tesla posted a surprise profit for the third quarter.
But that was then.
Analysts surveyed by Bloomberg expect the company to have lost almost $160 million for the quarter, or $1.04 per share on an adjusted basis. But Tesla could lose less than that and notch a beat.
But the breakdown of earnings for the quarter is sort of beside the point. Tesla shares have been rallying since the beginning of the year and have threatened their all-time highs. In the last week, some of the gains have been receding, but on Tuesday, shares were trading up around 2%, at $279.
Apart from the Donald Trump-friendly possibility of Tesla making a lot of stuff in the USA, the rally lacks a solid fundamental basis. Yes, Tesla appears to be burning less cash than expected, but launching its $35,000 Model 3 vehicle later this year would be expensive. The company has also missed rather badly on its vehicle-delivery guidance, but CEO Elon Musk's promise of 500,000 units in annual production by 2018 stands.
Anyone who has followed Tesla's stock performance for any length of time knows that the spikes and swoons are typical. What's really at issue with the upcoming earnings announcement is how much weirder the reporting is about to get.
It was already weird. Tesla combines a record of quarterly losses with one of missed vehicle launches and of guiding high on deliveries and missing. Yet its market cap of $44 billion is now within a few billion of Ford's. The company comprises three intersecting, but not truly complementary, businesses: electric cars, energy storage, and battery manufacturing.
And there's now another business, solar power, with Tesla's $2.1 billion acquisition last year of SolarCity. (There's also a refueling business, the Tesla Supercharger network, but it can be considered an enabler of the electric-vehicle business.)
Most analysts haven't really worked SolarCity into their models yet. If they've considered the issues, they've seen solar adding effectively zero to Tesla's value or expressed concern about SolarCity's effect on the balance sheet.
UBS's Colin Langan is in the latter camp — he's a Tesla bear with a $160 target price and a "sell" rating on the stock. In a research note published last week, he wrote: "With the closure of the SCTY merger, TSLA is assuming numerous risks. ... We continue to believe SCTY is an unneeded distraction during a very challenging launch period."
Before the SolarCity merger, the analysts who covered Tesla were mainly autos people. Now energy analysts will probably enter the picture in bigger numbers. We'll have a point of view on the transportation side of the business and a point of view on the solar side, but those perspectives may have no logical meeting point. Mixed in will be the energy-storage and battery-manufacturing components.
A holding company
Tesla has thus become a holding company. But it's not a holding company like General Motors, which essentially runs two business — one being auto design, manufacturing, and marketing, the other being financial services — with both businesses deeply interconnected via the consumer.
Assuming Tesla doesn't stage another big earnings surprise, the conversation about Q4 and fiscal 2016 will likely break down into three key elements:
1. 2017 deliveries guidance
To achieve 500,000 in annual deliveries by 2018, Tesla needs to do better than 100,000 in total production in 2017. It's not inconceivable that the Model 3 would rapidly ramp up after a late-2017 launch, especially given that production of the test vehicles starts this month, according to reports. But Tesla would have to figure out a way to assemble 400,000 more cars in 2018 after failing to build even 90,000 in 2016.
Skepticism regarding Tesla guidance is common, but it will increase if Musk reaffirms that 500,000 number on Wednesday.
2. Model 3 launch timing
The Model 3 looks as if it will launch on schedule in late 2017. That doesn't mean many cars will be delivered in 2017 — it's more likely full production won't arrive until mid-2018 at the earliest. But the Model 3 launch will carry tremendous symbolic value, as Tesla transitions from a niche market player to a major automaker. The stakes are preposterously high. Pulling that off could justify the bullish sentiment around the company.
3. Ride-hailing competition
Expect Morgan Stanley's Adam Jonas, a forward-thinking analyst, to get a question in about this one.
Tesla's businesses may be focused on Trump-positive US manufacturing and job creation, but the automobiles, the most critical of the businesses, are all-electric and a part of the previous big disruption in mobility. The new disruption is ride-hailing — and in the future, ride-hailing using self-driving cars.
Tesla has Autopilot, but as good as that semi-self-driving system is, it isn't fully autonomous. And while Tesla is a carmaker, Uber has no real liability in that capital-intensive space — it is a high-tech software-and-smartphone-driven facilitator of transportation. Tesla is heavy; Uber is light.
In this business, Uber's pre-IPO valuation is already $20 billion more than Tesla's. Musk and his team are aware of this and have introduced the Tesla Network as a competitor, but it's unclear how that network will function — and whether Tesla's investment in the previous disruption means it can't catch up with the newer and arguably more momentous one.
The upshot of all this is that Tesla will probably post a big loss for the fourth quarter and a loss overall for 2016 — nothing exotic there. But Tesla will also introduce itself to Wall Street for the first time as a far more intricate financial puzzle. That's bound to induce some oddball questions from analysts and some interesting responses from Musk and his team.
In short, this could be either the most confusing or entertaining earnings report in Tesla's history.
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