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Projections for Tesla’s 3Q15 Gross Margins and Drivers

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Nov. 2 2015, Updated 10:07 a.m. ET

Gross margins

Generally, analysts look at net profits for automotive companies. Since Tesla (TSLA) is in its initial phase, the net profits probably aren’t a key metric that investors should follow. After all, from its own admissions, Tesla doesn’t expect to post positive net income on a GAAP (generally accepted accounting principles) basis before 2020.

According to Reuters, Tesla lost $4,000 per Model-S in 2Q15. The calculation was based on Tesla’s reported operating loss in the quarter. Read An Investor’s Guide to Tesla Motors to explore why Reuters’ calculations don’t paint a true picture of Tesla. Currently, Tesla forms 0.54% of the PowerShares QQQ Trust, Series 1 ETF (QQQ).

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Analysts’ estimates

However, analysts have been following Tesla’s gross margins closely. The above graph shows the progression in Tesla’s gross profit margins. According to analysts surveyed by Bloomberg, Tesla is expected to post gross profits of $304 million in 3Q15 at a margin of 24.5%. In contrast, Ford (F) and General Motors (GM) posted gross margins of 15.9% and 17.5%, respectively, in 3Q15. Tesla’s gross profit margins are more in the ballpark of luxury carmakers including Daimler and BMW. Daimler (DDAIF) had a gross margin of 21.5% in 3Q15 while BMW enjoyed a gross margin of 19.2% in 2Q15.

2Q15 margins

In 2Q15, Tesla posted gross profits of $213 million at a margin of 22.3%. In its 2Q15 earnings conference call, Tesla’s CFO, Deepak Ahuja, said that Tesla’s 2Q15 gross margins were negatively impacted by a stronger dollar and the product mix. However, Ahuja expressed optimism that with the Model-X and Model-S combined, Tesla should be able to post a gross margin of “25% and better” in 2016. Based on the current estimates, analysts expect Tesla to post gross margins of 26.2% in 2016.

Elon Musk, Tesla’s CEO, said during the company’s 2Q15 earnings conference call that the Model-S could hit a 30% gross margin next year “contingent on macroeconomic conditions not going whacky.” Earlier this year, during the company’s 4Q14 earnings conference call, Musk said that the gross margins could be “somewhere around 30%” by the end of 2015. Factors like currency and product mix changed the equation.

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