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Tesla Earnings Week: Can It Repeat Last Year’s Magic?

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  • Tesla’s third-quarter earnings are scheduled this week. The stock tends to be volatile after its earnings release.
  • While Elon Musk said that he expects the third quarter to be break-even, analysts expect a small loss for the company.
  • In the third quarter of 2018, Tesla posted a net profit. The company posted a net profit in the fourth quarter as well. While US markets were weak in the fourth quarter of 2018, Tesla stock closed in the green. Notably, two of the company’s four profitable quarters were in 2018. Can the company repeat last year’s magic?
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Tesla’s earnings week

Tesla (TSLA) is scheduled to release its third-quarter earnings on Wednesday. Notably, the company posted better-than-expected earnings in the third quarter of 2018. Last year, the third quarter was only the third profitable quarter for Tesla since it went public. The company delivered another profit in the fourth quarter of 2018. Two of Tesla’s four profitable quarters were in 2018. The stock closed in the green in the fourth quarter of 2018 even though broader markets were deep in the red.

So far, October has been a strong month for Tesla stock. The company has gained almost 7% this month. Tesla closed with gains for nine consecutive days between October 7 and October 17. However, the law of averages finally caught up with the stock. As a result, the stock closed down 1.9% on October 18. So far in October, Tesla stock is outperforming the S&P 500 (SPY) and legacy automakers like Ford (F) and General Motors (GM).

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Tesla’s third-quarter earnings

Coming back to Tesla’s third-quarter earnings, analysts expect a small loss. During the second-quarter earnings call, Tesla CEO Elon Musk sounded confident that the company would achieve break-even in the third quarter and post a profit in the fourth quarter. However, his projections aren’t set in stone. The company has missed many deadlines and projections in the past due to Musk’s stiff targets.

Tesla’s third-quarter deliveries are a perfect example. A leaked email showed that Musk was pushing for 100,000 deliveries in the quarter. The company’s third-quarter deliveries fell short. Tesla’s third-quarter deliveries were stronger than analysts’ expectations the previous month due to the leaked email. Setting aggressive targets isn’t necessarily a bad thing. However, markets punished the stock for the “miss.” After the initial pessimism after its third-quarter delivery report, the stock has bounced back over the last two weeks.

Can Tesla repeat the magic?

We’ll have to see if the company can repeat the magic. In my view, markets aren’t pricing a profit in the third quarter. If Tesla can post a profit in the quarter, it would help propel sentiments. Notably, the fourth quarter looks optimistic for Tesla. The company should benefit from several factors like higher demand in the quarter. If the company posts a profit in the third and fourth quarters, it would enthuse bulls. While Tesla bulls aren’t really perturbed by its frequent losses, some investors could get disenchanted with Tesla if it doesn’t address the issue of sustainable profitability.

Investors should expect a tug-of-war between bears and bulls as Tesla’s earnings date nears. We’ll have to see who wins the match after the earnings release. Given the recent upward price action, markets seem to be getting optimistic about Tesla’s upcoming earnings report. The stock might see a major sell-off if the company has a disappointing earnings report.

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