Read Before Tesla’s Earnings Announcement Tomorrow

Tesla (TSLA) shares are up more than 90% since the electric carmaker reported first-quarter earnings in late-April. The report at that time easily beat Street EPS expectations and also showed surprising strength in revenues. The company has now topped analyst expectations in three of the past four quarters. In this edition of Advisors in Focus, we preview Tesla’s next report and explore some of the critical factors that could determine the future direction in shares.

Tesla is due to report Q2 results after the bell Wednesday and hold an analyst call at 5:30 p.m. ET. Analysts polled by FactSet expect the company to report a loss of 14 cents per share (adjusted EPS) on $5.15 billion in revenue. Those numbers compare to a 9-cent per-share profit on $5.85 billion in sales during the first quarter.

Tesla’s results in the second quarter were affected by the COVID-19 crisis because, among other things, the company’s main plant in Fremont, Calif. was closed for much of the three-month period. A factory in Shanghai helped to offset some of the lost production in the U.S., and Tesla offered upbeat guidance earlier this month when the company said second-quarter sales were ahead of expectations despite the pandemic.

The stock rallied to record highs of nearly $1,800 on July 13th, a 300% surge for the year, before retreating back towards $1,600 ahead of this week’s profit report. Tesla is now the second-largest automaker by market value in the world and the 17th largest company across all U.S. stocks.

Tesla is also heavily researched by financial advisors. According to TrackStarIQ data, the ticker is the second most searched stock over the past month (second only to Inovio Pharm). In addition, online engagement seems to be increasing as the earnings date approaches, as total unique users with eyeballs on TSLA content increased 40% in the second week of July compared to the first week of the month, and up nearly 300% in the second week of July compared to the last week of June.

And the options market is pricing in the potential for a significant move in Tesla around earnings. The July 24th at-the-money straddle (1600-strike puts and 1600-strike calls that expire 7/24/2020) was recently worth $265 or 16.5% of the $1,600 share price. Therefore, options are priced for the stock to move by roughly 15% after results are released this week.

In addition to second-quarter EPS and revenue numbers, TSLA bulls and bears will scrutinize the report to determine if the company is on track to reach other important milestones:

  • Profitability – while analysts expect Tesla to report a modest loss for the second quarter, the company surprised by posting a small profit in the first quarter and, if history repeats, two back-to-back quarters of profitability would likely instill greater confidence in Tesla shares.
  • Updated delivery numbers – Tesla set a goal of 500,000 vehicles delivered in 2020. Investors are left wondering if the COVID-19 crisis puts that number out of reach. A better-than-expected 88,400 were delivered in the first quarter and, according to a July 2, 2020 press release, 90,600 delivered in Q2.
  • Million-mile batteries – Tesla is working on a battery that will outlast the competition; the company hosts a “battery day” on Sept. 22 alongside its annual shareholder meeting.

While Tesla has defied the bears so far in 2020, the earnings report is where the rubber meets the road. Volatility should be expected, especially if the company falls short on EPS, revenues, profitability, deliveries, or in developing next-gen batteries.

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