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Could Elon Musk Put Tesla Back on Track in 2018?

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Feb. 6 2018, Updated 7:32 a.m. ET

Tesla’s 4Q17 earnings event

Analysts’ estimates for Tesla’s (TSLA) 4Q17 revenue suggest a continuing positive trend for the next couple of quarters. However, the company’s gross margins are likely to suffer due to higher costs related to its Model 3 production ramp-up.

In this part of the series, we’ll explore some important expected updates from Tesla’s upcoming earnings event and find out whether or not Tesla could regain investors’ confidence in 2018.

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Model 3 production updates are critical

As noted earlier in this series, Tesla stock delivered outstanding positive returns of ~69.2% in 1H17 but turned negative in 2H17. Much of the optimism in 1H17 was driven by investors’ high expectations for the Model 3 and the company’s high-volume production plan for 2018.

Later in 2017, TSLA’s lower-than-expected Model 3 deliveries and production in the third quarter drove pessimism. Model 3 production and deliveries certainly improved in 4Q17. However, production didn’t improve enough to regain the confidence of investors who feared that Tesla might delay its high-volume production plan further.

It’s no secret that the Model 3 could play an important role in defining Tesla’s future growth as it’s the company’s first mass-marketed electric vehicle. High volume production of the Model 3 is also likely to help Tesla protect its profit margins going forward. Investors will likely be eyeing updates on the Model 3’s production rate improvement during Tesla’s 4Q17 earnings event.

In the last few years, mainstream automakers (XLY) have failed to replicate the success of Tesla’s Model S and Model X. Mainstream automakers such as General Motors (GM), Ford Motor Company (F), and Toyota Motor (TM) have been gearing up to challenge the Model 3 in the coming years.

Other expected updates

In November 2017, Tesla’s CEO Elon Musk unveiled the company’s electric semi truck and a very powerful new version of its Roadster sports car at a high-voltage event. So far, many big names, such as Walmart, PepsiCo, DHL, and J.B. Hunt, have shown their interest by preordering the Tesla Semi. TSLA plans to begin producing the Semi in 2019, and this could be a big challenge for Musk and his team. Nevertheless, it will be interesting to see official Semi preorder figures from Tesla and how the company plans to prepare for production.

More importantly, Musk needs to ensure that Tesla begins implementing its high-volume production plan in the coming quarters to keep investors’ optimism alive in 2018.

Continue to the next article to learn how Tesla’s valuation multiples look leading up to its 4Q17 earnings event.

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