Why Tesla’s Gross Margin Could Expand in 2Q17


Jul. 26 2017, Updated 9:09 a.m. ET

Tesla’s 2Q17 report

In the preceding part of this series, we looked at revenue estimates for Tesla’s (TSLA) 2Q17. The estimates suggested that a positive trend in Tesla’s revenues is likely to continue over the next couple of quarters. Positive YoY (year-over-year) growth in the deliveries of the Model S and the Model X could be the primary reason for these solid revenue expectations.

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Existing margin trend

In 1Q17, Tesla’s automotive gross margin expanded to 27.4% on a GAAP basis, up from 24.0% one year ago. Similarly, Tesla’s GAAP consolidated gross margin stood firm at 24.7%. These consolidated margins were much higher than the 22.1% gross margin it reported in the corresponding quarter of 2016.

In the first quarter of 2017, Tesla’s gross margin was negatively affected by the unfavorable currency movement caused by the stronger US dollar.

Estimates for Tesla’s 2Q17 margins

According to Tesla’s 2Q guidance, its gross margin should recover. Analysts are estimating Tesla’s adjusted consolidated gross profit to reach $601 million in 2Q17. The company’s gross margin is likely to expand to 24.0% in the second quarter this year from 20.9% in 2Q16.

Notably, Tesla’s gross margins are much higher than those of legacy auto giants (FXD) like Ford Motor (F), General Motors (GM), and Fiat Chrysler Automobiles (FCAU).

Now let’s explore a few key expectations from Tesla’s 2Q17 earnings release event.


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