Tesla Earnings: What To Look For

| About: Tesla Motors (TSLA)

Tesla (NASDAQ:TSLA) is expected to announce Q4 results. Investors are excited to see if this brash start-up car company is finally going to make some money as well as make some cars. But it would be a big mistake to look at Tesla's numbers the same way as GM's (NYSE:GM) numbers just because they have started making cars.

Tesla is running at ~20k units/yr in a factory capable of ~500k units a year - a production level they have claimed as their target. This is still more of a start-up than a mainstream car company. And they have never aimed to be a niche car company, so measuring their performance against that really doesn't make any sense at all.

Here are the things I am going to look for when Tesla releases and talks about Q4 results:

  • Are they doing 20k units with "one shift'?" Will they talk about going to 30-35k units of Model S, and are they putting a second shift in place? This can tell us - depending on exactly what they say - how well or poorly the factory is running. Getting a feel for the gross margins on Model S would be interesting, but remember that Q4 includes at most 2-3 weeks of running the line at full rate and even an optimist shouldn't expect to see even break-even for the entire quarter. Guidance and color on this is where the "action" will be.
  • How are their partnering agreements working? Are Toyota or Daimler going to do more vehicles / larger quantities? Could, for instance, RAV-4 EV's be fitted to use SuperChargers? Could there be an additional partner coming online? Subaru might be an interesting "connection" with close Toyota ties plus US manufacturing...
  • Progress on Model X. Stamping dies, the smaller motor/inverter/gearbox for the AWD version, crash testing - how are these coming along, and how much cash are they consuming? What is the timeline for both engineering progress and expenditures?

Remember, Tesla is still a start-up. Results and measurements matter more with respect to where they are headed and when they will arrive than they do about where they are now. Investors hoping to see SG&A + R&D taper off and Tesla's starting to look like a successful, stable niche car company are wishing for entirely the wrong thing. A 20k unit/yr niche car company could never justify Tesla's current price point no matter what their margins turn out to be. But if Tesla is headed on a path to be lead disrupter of the car business, they are cheap at twice today's $40ish price.

Disclosure: I am long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.