Tesla Motors, Inc. Earnings: Guidance Will Be Key

By Markets Fool.com

Tesla factory in Fremont, California. Image source: Tesla Motors.

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For Tesla Motors (NASDAQ: TSLA), this is likely to be a week packed with headlines. Just a few days after the electric-car maker announced it agreed with SolarCity on terms to acquire the solar panel company, Tesla will be reporting second-quarter results. While financial results from the quarter will definitely be of interest, guidance for vehicle deliveries may turn the most heads. With the shareholder letter set to be released just as Tesla should be ramping up production and deliveries at a steeper rate than it has for the entire year, guidance provided on Wednesday will give investors an idea of whether its ambitious growth plans are on pace.

Looking ahead

Going into 2016, Tesla had huge expectations for vehicle deliveries. With the help of an expected rapid production ramp of its late-2015 launched Model X SUV, management predicted Tesla would deliver 80,000 to 90,000 vehicles during the year -- up 58% to 78% from its 50,635 deliveries last year. But after falling behind its initial production and delivery targets for the first half of the year, this guidance range is beginning to appear out of reach.

Model X. Image source: The Motley Fool.

During the first half of the year, Tesla delivered about 29,200 vehicles, leaving between about 50,800 and 60,800 units to be delivered during the second half of the year in order for Tesla to hit its full-year guidance range. In other words, Tesla's quarterly deliveries in Q3 and Q4 need to average to about 27,900 vehicles -- a huge jump from Q1 and Q2's 14,820 and 14,370 quarterly deliveries, respectively.

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Notably, however, Tesla management has already indirectly informed investors that it has lowered its expectations for the year. After announcing on July 3 that it missed its guidance for 17,000 deliveries by 2,630 units, the company said it now "expects to produce and delivery about 50,000 vehicles during the second half of 2016."

The question now is whether Tesla will maintain this lowered outlook when it releases its second-quarter shareholder letter this week.

With this context in mind, it seems reasonable to expect Tesla to guide for at least 20,000 deliveries in Q3, leaving about 30,000 vehicles to be delivered in the final quarter. While 20,000 units in Q3 would be a big jump from Tesla's 14,370 deliveries in Q2, management was adamant in its press release for second-quarter deliveries that production had ramped up significantly. Tesla said it wrapped up Q2 with about 5,000 customer-order vehicles in transit and producing "just under 2,000 vehicles per week," and expects to achieve a production rate of 2,200 vehicles per week during Q3.

Model S and X mix

While Tesla may not give investors much insight into how much of its guidance is expected to come from Model S or Model X, trends for the previous three quarters can help investors get an idea of what may be realistic: Model X deliveries are increasing rapidly, and Model S deliveries have been declining.

Vehicle

Q4 2015 Deliveries

Q1 2016 Deliveries

Q2 2016 Deliveries

Model S

17,272

12,420

9,745

Model X

206

2,400

4,625

Given these mix trends for Tesla's vehicle deliveries, it's likely Model S and X deliveries will soon represent similar proportions of total deliveries -- with about half going to S and half going to X.

On this note, it will also be particularly interesting to see if management anticipates Model S deliveries will continue to fall or not. Is Model X eating into Model S sales? Or is this only a temporary setback for Model S, potentially driven by the impact of Model X production on Model S production?

Investors will get an update on Tesla's earnings, as well as its guidance for Q3 and for the remainder of the year, this week. Shortly after market close on Wednesday, Aug. 3, Tesla will post its quarterly shareholder letter to the investor relations area of its website.

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Daniel Sparks owns shares of SolarCity and Tesla Motors. The Motley Fool owns shares of and recommends SolarCity and 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.