Tesla Motors, Inc. Earnings: Why Guidance Is Critical

By Markets Fool.com

Electric-car maker Tesla Motors reports first-quarter results on Wednesday. With vehicle deliveries already announced, investors will be paying particularly close attention to the company's guidance for the rest of the year. Will Tesla continue to live up to expectations for rapid growth?

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Tesla Model S.

The expectations
For Q1, analysts expect non-GAAP revenue of $1.04 billion, up 42% from the year-ago quarter. Expectations for fast-growing revenue reflect the company's 55% year-over-year growth in first-quarter Model S sales. Analysts expect revenue per car to come down as zero-emission vehicle credits as a percentage of revenue continue to decline.

In anticipation of higher spending as Tesla ramps up support for its rapid growth in its customer base and a growing product line, analysts expect Tesla's profitability to tread near breakeven on a GAAP basis. The consensus analyst estimate for Tesla's EPS in Q1 is a $0.50 loss, down from a $0.12 profit in the year-ago quarter.

What guidance do investors expect?
There will be a number of key items to look for when Tesla reports first-quarter results. But the company's guidance is arguably one of the most important figures Tesla will provide. While Tesla investors shouldn't lose site of the big picture in their analysis of guidance for a single quarter or a year, near-term guidance helps paint a picture of the company's demand and execution -- two crucial factors in giving investors confidence in Tesla's longer-term story.

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Here's what we already know about Tesla's expectations for vehicle deliveries in 2015.

  • Tesla said in Q3 last year that it plans to deliver 50,000 Model S in 2015, up 58% from deliveries in 2014.
  • In Q4, Tesla said it planned to deliver 55,000 vehicles this year, including Model X.
  • Presumably, the difference between these two figures mentioned above is Tesla's expected deliveries of its Model X SUV, which is supposed to begin delivering to customers in Q3.
  • Tesla said it plans to deliver 40% of its full-year guidance for 55,000 vehicles in the first half of 2015.
  • Tesla has said it expects the Model X production ramp-up to double the initial ramp-up for Model S.

Model X prototype. Source: Tesla Motors.

With these comments from management in mind, and given the vehicle delivery figure for Q1 Tesla has already released, 2015 vehicles sales would have to pan out to look something the chart below in order for Tesla to meet its year-end guidance.

Asterisks indicate estimate by author. Estimates based on commentary from Tesla management on expectations for 2015 vehicle sales. Chart source: Author.

The company's aspirations for growth in vehicle deliveries in 2015 are undoubtedly ambitious. This is why Tesla's guidance in Q2 will be so important. If Tesla management guidance for Q2 comes in lower than expected, it would signal the company was too optimistic when it laid out its expected deliveries for 2015. On the other hand, if Tesla meets or exceeds expectations, investors can have greater confidence in management's ambitious full-year guidance.

While Tesla is unlikely to provide specific estimates for Q3 and Q4 when it reports first-quarter results, management will almost certainly provide an outlook for Q2, as well as say whether Tesla plans to maintain its guidance for the full year. For Tesla to deliver 40% of its full-year guidance for 55,000 deliveries in the first half of 2015, the electric-car maker will need to guide for 11,970 vehicle deliveries in Q2.

The article Tesla Motors, Inc. Earnings: Why Guidance Is Critical originally appeared on Fool.com.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends and owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.