Tesla Motors, Inc. (TSLA) is one of the hottest and most talked about stocks in the market these days. Shares have soared 280% so far this year, and there is still significant momentum built in. Prior to last quarter's earnings report, I made some projections that proved to be spot on. In doing my research for this quarter, I have noticed very similar trends. This article will outline my projections as well as how I feel the share price will react to the news.
The company is set to report earnings on July 25th, and will most likely report a loss of roughly $0.10 per share. Last quarter, Tesla reported its first quarterly profit, so at first, this projected loss might seem dismal and lackluster. However, most analysts claim that Tesla will not benefit from the sale of Zero Emissions Vehicle Credits [ZEV], as it has in previous quarters. During Q1, the company sold $85 million worth of these credits, which helped to augment Tesla's earnings for the period. While CEO Elon Musk will likely report a loss, this quarter will still be a monumental step in the company's rapid growth cycle. In fact, I believe that investors will react very positively to this report, and that it could even trigger another short squeeze.
Here are a few highlights I think we can expect in this release:
1. Production capacity has grown to significantly more than the projected level of 21,000 units per year
In tracking the Vehicle Identification Numbers [VIN] of the Model S, it seems that Tesla has significantly ramped its production capacity. In fact, in the last week of June, the company produced 600 units, and in the two weeks prior to that, the company produced 542 and 550 respectively. As Elon Musk has insinuated recently, the company is clearly operating significantly above its 400 unit-per-week target for 2013. If my projections are correct, I feel that Tesla is on track to deliver 25,000 units in fiscal 2013. This projection is an important one. In fact, if Tesla produced only 21,000 units this year, the company may not break-even. However, if we factor in the higher-than-projected production capacity, Tesla could potentially report a sizeable profit for the year.
2. Roughly 17,500 Model S units have been shipped thus far
Back to the VIN tracking. This week, the highest Model S VIN I could find was 17,239. Therefore, by the time the company reports earnings on the 25th, I expect to hear that 17,500 units will have been shipped. This number is also higher than the expected level of output to this point.
3. More details about the Model X
Tesla's next production model, the Model X, is expected to begin shipping in 2014. There are rendered images of the vehicle on the company's website, along with a slew of technical details. As of now, the Model X is expected to accelerate from 0-60 MPH in under 5 seconds -- a very impressive launch for an SUV. Both the interior and exterior of the Model X are gorgeous (as expected). Between the wing-styled doors and the technology-riddled interior, the Model X will certainly be a head turner. The most important detail I would like to hear in the company's report is when exactly production will initiate. This date is very important, as the production of the Model X will likely slow the output of the Model S. Therefore, if the company begins producing the newer model during fiscal 2013, it could negatively affect the overall earnings figure, potentially even dragging the full year EPS to a negative figure.
What does this all mean for the price per share? Well, recently shares of Tesla have not traded based on fundamentals or valuation metrics, but rather on hype and on news pointing towards growth targets and achievements. That said, I feel that this release, if things go according to my projections, will potentially trigger another short squeeze. Tesla's short interest is still very high, resting currently at 31%. A high short interest means that many investors are still betting against the company in terms of its share price. Many investors do not feel that Tesla deserves a forward P/E ratio of roughly 140, and frankly they are correct.
What they are wrong about, however, is the tremendous support that is built into the share value. Shareholders are buying an idea, a concept. They are bidding their support for one of the great innovators of our day. Shareholders are not concerned with valuation, but rather with the brisk growth rate the company is achieving. I believe that, come July 25th, shares of Tesla will pop on this earnings report. Those with short positions will, once again, be hurt by the share appreciation that will accompany the earnings report. I also believe that investors who are short TSLA have likely protected themselves by using tight trailing stops to avoid a repeat loss. All things considered, I feel that if shares of Tesla appreciate over 5% on the back of this report, we will see another short squeeze. I do not believe that investors will react negatively to the loss, as many have expected a loss since last quarter.