Tesla: What matters in earnings?

It has become one of the most anticipated corporate earnings next week as significant technology companies release their 2nd quarter earnings results. And in the pipeline is Tesla, which will report on Monday, after the market closes.

Let’s run through what we can expect.

The result will be complicated on multiple fronts

The earnings report is likely to be a complex puzzle as the bears and bulls fight for the direction of the stocks. The estimation is for Tesla to report about 94 cents per share in earnings with sales of $11.5 billion. We would usually need to see Tesla hitting above this target for meaningful upside swing.

The variables are wide

The automobile industry has been facing many uncertainty and headwinds. This would also surface in Tesla’s earning. First, we have a semiconductor shortage that is impairing the supply of Tesla cards. Next, vehicle pricing and vehicle profit margins are hit, given a relatively young recovery phase of the economy. And finally, investors will review Tesla’s battery storage business.

To sum up, Tesla will need an apparent breakthrough in its operating profit to allow the stocks to escape from their current range.

How has Tesla stock performed thus far?

In 2020 third quarter, we saw Tesla reporting an operating profit of $800 million, and this saw the stock price jumped by more than doubled to around $860 within 3 months. However, when the operating profit growth moderates towards the subsequent quarters, investors start to offload its shares, and it has come down to the $640 region. Therefore, profit stagnation appears to have a significant influence on Tesla’s equity price.

Nonetheless. things are rosy in investors’ minds. They expect a record-breaking operating profit of around $835 million for the 2nd quarter, underpinned by solid deliveries. If we look back at the recent deliveries, the 2nd quarter of 2021 is the first time Tesla had delivered more than 200,000 vehicles in one quarter. That’s a feat of achievement.

The bulls and bears arguments

When the results are released, the common theme is the fight over the representation and interpretation of the results. Two key factors are critical in the discussion. The first is how Tesla generates its sales by selling the regulatory credits. In the first quarter, Tesla generated about $518 million in credit sales, which had boosted Tesla’s earnings. Eventually, this credits sale will die down as more legacy car brands start to sell their own EVs.

Then we have the Bitcoins concern. Tesla did recognize some gains on their Bitcoin holdings during the first quarter results. However, the cryptocurrency has since then plunged by half from its April peak. This means that we could expect a slight loss to hit the bottom line.

And finally, the weak news from Tesla’s new German plant will be a concern coupled with its Austin, Texas facility. The Austin plant is meant for Cybertruck production. And with this production concerns comes its lucrative driver-assistance functions where it has begun selling that software in a subscription model. Then, Tesla might have to provide more information on how it can make money from its charging network, as Elon Musk tweeted on opening the infrastructure to competing EV car brands.

The earnings conference will be the highlight, and the fate lies in the details and metrics. But, for investors, it will be the beginning with an end destination in mind for Tesla’s future.