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Tesla’s Earnings Are Expected to Be Ugly
By Esha Dey
April 24, 2019, 6:00 AM EDT Updated on April 24, 2019, 2:50 PM EDT

How to Play Tesla Ahead of Earnings
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The time has finally come for the market to find out just how ugly Tesla Inc.’s first quarter was.

Expectations for the period have been lowered sharply in recent weeks, especially after disappointing delivery numbers were announced earlier this month. That continued the lousy sentiment precipitated earlier in the year by Tesla cutting jobs and vehicle prices and warning of a “difficult” road ahead. What’s followed has been mounting concern that demand has topped out.

“First-quarter results have already been telegraphed as weak, and we expect investor focus to remain on cash and short-term deliveries,” Roth Capital Partners analyst Craig Irwin wrote in a note to clients on Tuesday. “We think guide needs to point to 85,000-plus second-quarter deliveries for investors to take a neutral view on guidance. If cash is below $2.5 billion, we think investors should be more anxious about a near-term capital raise.”

The question of whether Tesla needs to raise more money has been hanging over the company for a while now, with analysts maintaining that the carmaker needs to bolster its balance sheet. “Investors have increasingly asked about the need for an equity raise; we continue to think Tesla should return to capital markets to strengthen the balance sheet, despite management’s stated desire to avoid issuing new equity,” Baird analyst Ben Kallo wrote in a note.

Chief Executive Officer Elon Musk has said previously that he didn’t want or need to return to capital markets, though his tune seemed to change during Monday’s autonomous technology-related event. He hinted Tesla probably will need to raise money as it scales its fleet of vehicles he says will be capable of self-driving. Musk also said the company will introduce a robotaxi service of cars that won’t need humans at the wheel in 2020, a pronouncement that drew widespread doubts from Wall Street.

“Ultimately we think the event was a way for the company to focus investors away from the underlying demand and margin pressures the company is currently facing as they bring the Model 3 to mass market and as there has been waning Model S/X demand,” Goldman Sachs analyst David Tamberrino wrote.

With the “autonomous smokescreen” now cleared out of the way, clues about demand -- including a potential forecast for second-quarter deliveries -- and margin trends will be the two biggest items to watch out for when Tesla reports results after the market close on Wednesday.

Tesla shares dropped as much as 2.2 percent ahead of the numbers. The stock has 27 percent of the free float held short, according to financial analytics firm S3 Partners.

Read more: Tesla Bears ‘On Fire’ Amid Blazing Cars, Impending Results

What Bloomberg Intelligence Says

“Tesla’s most important measure will be of sustainable demand levels, after the company released a surge of pent-up orders in third quarter and fourth quarter before the federal tax credit halved by $3,750 on Jan. 1. Expectations for Tesla’s first-quarter earnings swung from a $217 million pretax profit at the close of 2018 to a $232 million loss after the company disclosed an 11 percent sequential production drop from fourth quarter, including a 40 percent decline in high-margin Model S and X builds.”

--Kevin Tynan, autos analyst
Click here to view the research

Just the numbers

1Q adjusted loss per share estimate $1.30 (range loss/share 64c to loss $2.60)
1Q revenue estimate $4.84b ($4.40b-$5.12b)
1Q adj. automotive gross margin estimate +17.8%
1Q capital expenditure estimate $508.2m ($291m-$625m)
2Q adj. automotive gross margin estimate +19.5%
2Q capital expenditure estimate $551.4m ($250m-$650m)
Data

Tesla 13 buys, 8 holds, 15 sells; avg PT $303: Bloomberg data
Implied 1-day share move following earnings: 9.2%
Shares fell after 7 of prior 12 earnings
Adjusted EPS beat estimates in 7 of past 12 quarters
Timing

Earnings April 24 after market close
Call 5:30pm; conference call website
— With assistance by Dana Hull

(Adds share move, adds short interest detail in paragraph seven.)
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