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Tesla’s Q2 Earnings Release Is Its Most Important Ever

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  • Tesla is set to report its second-quarter earnings tomorrow. The stock has almost quadrupled this year as electric vehicle stocks rally.
  • Tesla stock is up more than 52 percent in July alone amid expectations of possible inclusion in the S&P 500. To be eligible, Tesla will need to post a profit in the second quarter.
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Tesla’s second-quarter earnings release is set for tomorrow. The company’s profitability has not been great so far. Tesla has only been profitable in seven quarters since it went public a decade ago. The company has not posted an annual profit yet. Regardless, Tesla's market capitalization is over $300 billion, exceeding that of Toyota Motors, the largest automaker.

Tesla’s Q2 earnings

Tesla stock bulls argue that the company should not be compared with legacy automakers, but with tech companies. They have also defended Tesla’s dismal profitability record and do not seem to care about its persistent losses. However, the company’s second-quarter earnings results could be different.

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Tesla stock rising on a possible S&P 500 inclusion

Over the last few weeks, Tesla stock has rallied on expectations of possible inclusion in the S&P 500. The company, which has posted a net profit for the last three quarters, would be eligible for S&P 500 inclusion if it reports a profit in the second quarter. If the stock gets included in the index, funds that track the S&P 500 would have to buy Tesla stock according to its weight in the index. Currently, the assets managed by funds tracking the S&P 500 stand at around $4.4 trillion. If Tesla gets included in the S&P 500, many investors, including Warren Buffett, would indirectly hold the stock.

Tesla's Q2 earnings estimates

Analysts polled by Thomson Reuters expect Tesla to report a net loss of $50 million in the second quarter. That said, their earnings estimates for Tesla have not always been accurate. The company smashed analysts’ earnings estimates in the last three quarters. However, Tesla missed analyst estimates by a significant margin in the second quarter of 2019.

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Last month, in a leaked email, Elon Musk said that “breaking even is looking super tight.” However, Musk did not specify whether he was referring to net profit or another metric.

If Tesla manages to post a profit in the second quarter, bulls could get some encouragement. However, if it posts a loss as analysts are projecting, the stock could fall burst the TSLA stock bubble. All said, the second-quarter earnings report may be Tesla’s most important since it went public.

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