By Angelo Young - Tesla Motors Inc (NASDAQ:TSLA) is juggling a lot of expensive tasks right now, from growing its retail presence in China and Europe to preparing for the release next spring of its Model X full-sized electric crossover SUV.
At the same time, Tesla is fleshing out its network of quick-charge stations in North America, Europe and China. And then there’s that $5 billion battery factory it’s planning to build in one of five states, each of which is quietly vying for the high-price investment.
The public will get a chance to see Tesla’s progress in becoming the world’s only successful carmaker devoted exclusively to battery powered automobiles when company announces its second-quarter financial results on Thursday of next week.
“Certain costs should rise as the company expands internationally as it invests in technology and infrastructure,” Erfraim Levy, equity analysts for Standard & Poor’s, said in a research note. Risks, according to Levy, include slower-than-expected sales or delays in reducing costs.
Analysts polled by Thomson Reuters expect the Palo Alto, California, maker of the Model S luxury electric car to eke out a slim $3.4 million in profit, down from $26 million in the same quarter last year, as the company piles most of its estimated $810.6 million in revenue back into growing the business. Tesla is expected to lose 11 cents per share but adjusted for one-time items book a profit of 4 cents per share.
J.P. Morgan Chase & Co auto analyst Ryan Brinkman, who forecast an adjusted EPS of 7 cents, said in a May research note that there would be a large jump in research and development expenses in the second quarter, “as the company continues to ramp up spending ahead of the Model X launch.”
Not that anyone who believes in the Tesla cause is worried about slim (or any) profit right now.
Over the past year the company’s stock price has climbed nearly 84 percent to $220.57 in Friday afternoon trading as investors throw money behind their convictions the company will sell hundreds of thousands of cars a year by the end of the decade. The company said earlier this year it expected to deliver 35,000 Model S sedans in 2014, and that its main hindrance right now is meeting demand with its current production capabilities.
Sales will be one of the most important new developments in the upcoming earnings report. Unlike other automakers that report monthly sales, Tesla only reveals deliveries four times a year. In the first quarter the company sold 6,457 cars and produced 7,535. Nearly, 1,100 of them were sent to Europe and China to fill orders, but Tesla continues to struggle to build cars fast enough to meet demand. The upcoming earnings report will offer the latest data on Tesla’s sales and production pace. The company has said it would deliver 7,500 vehicles in the second quarter. If sales fall under that number, it would raise questions about whether the company is losing momentum.
Barclay’s analyst Brain Johnson said earlier this month that Tesla’s recent expansion into Chine would offset slow demand in Europe, where Tesla has been received coolly in Germany but reaps the benefits of favorable tax treatment for electric vehicles in Norway. Johnson sees Tesla meeting its sales estimate thanks to as many as 1,300 deliveries of the Model S in China.
Another important factor to look for in the upcoming earnings report will be any progress on the so-called gigafactory that Tesla and its main lithium-ion cell supplier Panasonic Corp. (TOKYO:6752) have signed on to constructing somewhere in the Southwest or California. One of Tesla’s monumental challenges will be to secure a consistent supply of the lithium-ion cells packed inside each Model S battery pack. It’s this secret (and pricey) component that gives the Model S that industry leading electric vehicle range of 265 miles from the company’s 85 kWh battery.
Without a consistent supply of these cells, Tesla can’t meet its long-term growth projections of a half-million annual deliveries by 2020. The gigafactory, which would actually be comprised of two separate locations, would give Tesla an annual supply of the 500,000 battery pack it would need by 2020.
In May, CEO Elon Musk said in a conference call that ground would be broken on the first of the two gigafactory sites in June. But so far Tesla hasn’t even announced the state in which the production sites would be located. Considering that the company’s financial statement is due out in less than two weeks, if any announcement is planned it will likely appear on July 31.
The company's gross profit margin, another important factor to look for in the earnings statement, is expected to have increase slightly, to 26 percent compared to just over 25 percent in the first quarter, an indication the company is trimming supply chain costs even as it spends heavily to build out its capacity to meet demand for the Model S.