Tesla Earnings: What I Will Be Watching

| About: Tesla Motors (TSLA)

Summary

Tesla will announce earnings on Wednesday, October 26.

This article discusses the important topics for the long-term investor.

Long-term investors should distinguish the important developments from noise.

Tesla's (NASDAQ:TSLA) stock is truly a gold mine for short-term traders, as many retail investors, who are prone to sentiment swings, own the stock. As a result, the stock can trade up or down by 5 to 10% on seemingly important but inconsequential news such as fires that are a lot more common for internal combustion engine ("ICE") cars, accidents that have happened since cars were first invented, product announcements that are foreshadowed with 140 characters of less, or even a joke.

A crucial goal of a successful investor should be to separate what is important from what is noise. As a rule of thumb, for stocks like Tesla, the ratio is about 1 to 99.

Noise: How many tags were registered last fifth Wednesday of the third month in Picklescott, Shropshire, England?

Anecdotal notes about deliveries at a specific location are likely misleading as deliveries can vary wildly from time to time due to factors other than those related to demand as management noted previously.

Important: Model 3 timeline

Tesla's mass-market product, the Model 3, is the linchpin of the Tesla story. Any signs of a delay in the long-awaited "late-2017" timeline would likely cause significant volatility in the stock. I will be reading between the lines in the shareholder letter and carefully listening to what management has to say during the earnings conference call.

My guess is that Tesla will stick to its timeline given that the Model 3 is a very high-profile product, long-anticipated by hundreds of thousands of people, who dished out cash deposits 18 months ahead.

Although I project that the first Model 3 deliveries will be made in 4Q17, as planned, I built in conservative ramp-up assumptions in my financial model. My current estimates are 5,000 Model 3 deliveries in 4Q17, followed by 25,000, 50,000, 75,000, and 100,000 deliveries in the four quarters throughout 2018. Together with Model S and Model X deliveries, I project that Tesla will deliver a total number of 370,000 cars in 2018, significantly below management's estimate of 500,000 cars for that year.

I will be closely watching for any updates on the Model 3 timeline, and the ramp-up, throughout 2018.

Noise: Will Tesla employ 2,784 or 3,026 people in Nevada in June 2019?

When reading opinion pieces from longs or shorts, remember: complicated math doesn't necessarily mean credibility. In contrast, if the math is extensive, it's usually there to cover the facts.

Simply stated, if the Gigafactory deal was so horrendous for Nevada, would so many states line up to bring Tesla to their state even before the company pulled forward its 500,000 annual car production goal from 2020 to 2018 and before hundreds of thousands of people made cash deposits for an unfinished product that was not to be released for another 18 months? Would Germany, the home of Mercedes (OTCPK:DDAIY) and BMW (OTCPK:BMWYY), two supposed Tesla-killers, engage in talks with Tesla to house the next Gigafactory, or would the French be vying for the next one? Give me a break.

You don't have to be Einstein or speak Calculus 3 to see through gobbledegook. Save your time.

Important: Progress at Gigafactory

The Gigafactory is important to Tesla on many levels: (1) volume production will reduce per-pack battery costs, (2) it is the single biggest investment that Tesla has ever made, (3) it will either prove or disprove Elon's grand predictions of significant advances in manufacturing, (4) it is an important part of the Panasonic relationship, and most importantly, (5) the Model 3 would fail without it.

I will be closely scrutinizing any comments on timeline milestones as well as any substantiated comments on breakthroughs in automation and advanced manufacturing.

Noise: Did Model 3 reservations decrease or increase by 1.0398 percent?

Management is unlikely to update us on the number of Model 3 reservations, likely for competitive purposes, and it's nearly impossible to deduce the exact number from the filings.

Important: Competition

Chevy Bolt surprised many, including myself, with its EPA-estimated 238 miles per charge. The Model 3 is still a superior option for the reasons I discussed in my article, . However, I will be carefully listening to any management commentary on the recent slew of all-electric vehicle announcements from competitors.

Specifically, I would like management to address why Autopilot will remain superior to similar technology from competitors for the foreseeable future, and how the company plans to position its ridesharing services against emerging competition from Uber (Private:UBER) and others. My article, Tesla Competition: Uber Edition, discusses this subject further.

Bottom Line: The Tesla story depends on the revenue and profits from the Model 3. Painstakingly detailed profitability projections for the next four quarters are useless, while any insight into Tesla's revenue or profitability in 2018 and beyond is crucial. Keep your eye on the ball.

Postscript: I will investigate and write about potential competition from several car manufacturers in the coming days and weeks. Whether you love or hate TSLA, if you think this article adds value to your analysis, please "follow" me by clicking the plus sign next to my alias at the top. This will allow me to invest further resources into proprietary data sources and incorporate deeper analysis in my articles.

Disclosure: I am/we are 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.