17 Oct

Tesla Stock: Momentum Could Continue after Earnings

WRITTEN BY Mohit Oberoi, CFA
  • Tesla stock has closed in the green for eight consecutive trading days. It has gained 7.8% this month and is currently trading near a two-month high.
  • The month started on a tepid note for Tesla after its Q3 deliveries fell short of the 100,000 level that Elon Musk was gunning for. Tesla’s Q3 earnings are scheduled for October 23.

Tesla stock performance

Tesla stock (TSLA) gained 0.72% in yesterday’s trading session. It has closed with gains for eight consecutive trading days now. Tesla stock is up 7.8% in October, surpassing the S&P 500’s gains. That being said, despite October’s returns, Tesla stock is down almost 22% this year. Both Ford (F) and General Motors (GM), meanwhile, are in the green year-to-date.

Incidentally, Tesla stock closed down 4.1% on October 3 as markets were apparently not impressed with its Q3 deliveries. However, as I noted previously, the company’s Q3 deliveries weren’t all that bad.

A month before Tesla’s Q3 delivery report, analysts weren’t expecting the company to deliver as many cars in the quarter. It’s just that a leaked internal email showed that Tesla CEO Elon Musk was aiming for 100,000 deliveries in the quarter. After the leaked mail, analysts raised their estimates for Tesla’s Q3 deliveries. Nonetheless, Tesla delivered a record number of vehicles in the third quarter and reiterated its 2019 delivery guidance.

Tesla’s third-quarter earnings

Tesla’s Q3 earnings are slated for October 23. Tesla stock tends to be quite volatile after the company’s earnings releases. In Q2 2019, Tesla posted a wider-than-expected loss, and the stock fell sharply.

Speaking of the upcoming Q3 earnings, it could be a similar story in terms of volatility. Notably, both bulls and bears have their metrics cut out for them when it comes to Tesla’s earnings report.

Tesla critics would drill down into the financial aspects that include profits (or losses), cash flow, margins, et cetera. Tesla bulls are more focused on the growth trajectory. So, Tesla fans might focus more on Musk’s comments on China Gigafactory, international expansion, and the trajectory of production at its Fremont plant.

Tesla stock: Bulls versus bears

One aspect that both bulls and bears might be interested in is Model 3 organic demand in the US market. Previously, some analysts had raised concerns that the Model 3 demand has likely peaked in the United States. But, in the fourth quarter, Tesla’s US demand might actually be strong. Potential customers might want to take advantage of the federal tax credit that’s set to expire from 2020.

In Q4 2018, Tesla also reported a bump in its deliveries as buyers expedited their purchases. However, the Q4 bump led to a trough in the first quarter of 2019.

This year, Tesla’s federal tax credit was halved. It was further cut starting July 1, and it’s set to be eliminated next year.

Can the momentum continue for Tesla stock?

Analysts polled by Thomson Reuters expect Tesla to post an adjusted net loss of $77 million in the third quarter. During the second-quarter earnings call, Musk said that the company might be near break-even in Q3.

Let’s return to the question of whether Tesla stock’s momentum will continue after the Q3 earnings release. In my view, things look pretty good unless Tesla posts a really wide loss in the quarter. That being said, some optimism already looks baked in, based on the month-to-date price action.

To be sure, forecasting TSLA’s earnings isn’t easy. The company’s earnings chart isn’t linear like established automakers such as Ford (F) and General Motors (GM). And it’s worth noting that TSLA has posted a net profit in only four quarters over the last decade. Providing fodder to bears, it hasn’t posted an annual profit over the period.

But then, the third-quarter earnings call would be another tug-of-war between bulls and bears. Stay tuned for more analysis. In the meantime, please check out Tesla Stock: Are You Bullish, Bearish, or Just Neutral? to find out what type of investor class you fit into when it comes to Tesla stock.

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