Tesla Earnings to Highlight Rapid Growth

By Markets Fool.com

Image source: The Motley Fool.

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When electric-car maker Tesla Motors(NASDAQ: TSLA) reports third-quarter earnings next week, investors will get a glimpse of the company's fastest vehicle sales growth since 2013. But since the company has already reported vehicle deliveries, investors will likely be particularly interested in how these record deliveries impact the company's financials.

The quarterly report is especially important because it comes just as the automaker should be making preparations for its important Model 3 launch next year. Here are some key areas to watch when Tesla reports results.

Signs of profitability

With Tesla's third-quarter vehicle deliveries up 70% sequentially and 111% year over year, investors should look for the company to move toward profitability. Specifically, investors should look for positive operating cash flow and a non-GAAP profit.

For context, Tesla has consistently reported negative operating cash flow and non-GAAP losses in recent quarters, with the exception of Tesla's $150 million in operating cash flow in Q3; but this positive cash flow was primarily due to the inclusion of a spike in Model 3 customer deposits after the lower-cost vehicle was unveiled earlier this year.

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Even if both operating profit and non-GAAP earnings per share are barely above breakeven, this would at least provide some evidence Tesla's business can benefit from scale. Of course, the fatter the cash flow and profits, the better.

For a reference point, the consensus analyst estimate for Tesla's adjusted third-quarter earnings per share is $0.09, according to Thomson Reuters.

Tesla store with a Model X (left) and Model S (right). Image source: The Motley Fool.

Vehicle delivery guidance

Another item worth checking in on will be guidance for fourth-quarter deliveries. In Tesla's Oct. 2 update on third-quarter deliveries, Tesla noted it is maintaining its guidance for 50,000 deliveries in the second half of the year.

Since Tesla delivered about 24,500 vehicles in Q3, this implies expectations for about 25,500 deliveries in the final quarter. Will Tesla maintain this guidance more than three weeks later into the quarter?

Investors may also want to look for commentary from management about what the company is expecting from vehicle deliveries in 2017. So far, Tesla hasn't said much about its expectations for next year. And guidance for vehicle deliveries in 2017 will be particularly interestingbecause it may preview how quickly the company may begin ramping up Model 3 deliveries, which are scheduled to begin in late 2017.

Model 3. Image source: Tesla Motors.

The big question: Is Model 3 still on time?

Finally, investors should look for an update on the company's important Model 3 launch.

In its second-quarter shareholder letter, Tesla said it had completed the design phase of Model 3 and that it remained "focused on launching Model 3 next year as scheduled." Further, management noted that Tesla planned to begin construction of the Model 3 body and general assembly centers before the year ended.

Given that Tesla's last vehicle launch -- Model X -- didn't occur until nearly three years after the company's initial target timeframe, investors have good reason to be concerned about Tesla's proposed timeline for Model 3.

Tesla reports third-quarter results after market close on Wednesday, Oct. 26. Investors can find a copy of the company's third-quarter shareholder letter on Tesla's Investors Relations portion of its website shortly after market close. And investors can tune into the company's live question-and-answer session, which will be available on the same website, at 2:30 p.m. PDT.

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