Tesla Motors (TSLA) topped its earnings estimates last quarter. Or it didn’t, depending on which set of estimates serve as the yardstick.
Either way, sales beat estimates, and in light of an impressive outlook for production and deliveries in the current quarter, Tesla stock has been catapulted higher today.
The big question is whether the maker of uber-cool electric vehicles will truly be able to ramp up its output by about 50% during Q4. The market is saying yes, but it remains to be seen if this is all just wishful thinking from CEO Elon Musk.
Let’s take a closer look at the numbers to see if we can clue in on Tesla’s fate.
Tesla Earnings
Last quarter, Tesla posted an operating loss of 58 cents per share on revenue of $936.8 million, though adjusting for quirky lease revenue rules, the company’s top line was actually $1.24 billion.
Analysts were calling for a loss of anywhere between 50 cents and 60 cents per share of TSLA, with lease-adjusted revenue expectations ranging from $1.21 billion to as high as $1.26 billion. Unadjusted revenue expectations also spanned from above to below the actual figure Tesla posted for its third quarter.
The widely-varied estimates underscore just how much of a moving target Tesla’s metrics are… a matter made even messier by the fact that Tesla is a relatively new company making a relatively new product, and the market is still unsure exactly how to handicap Tesla stock.
To that end, the number of vehicles made and delivered in any given quarter has been the measure of choice in lieu of net earnings. And, that’s the measure that is pleasing fans and followers.
In its third quarter of the year, Tesla delivered a total of 11,603 electric vehicles, almost all of which were the Model S. It made, however, a total of 13,091 cars, setting a quarterly production record for the company.
It gets better.
For the current quarter, Tesla says it’s on pace to produce deliver between 17,000 and 19,000 electric vehicles — not just beating prior records, but obliterating them.
It was this forecast that sent Tesla stock soaring 10% on Wednesday.
Costs Coming Into the Discussion
While capacity has grown, it hasn’t come cheap for Tesla Motors.
In the third quarter alone, Tesla spent $392 million — mostly to retool its Fremont, California plant to make the Model X. The company said it plans to spend $1.7 billion in all of 2015 — including $500 million in the current quarter. Those figures also include costs associated with its battery-production plant in Sparks, Nevada.
After that, however, capital expenditures should taper off, while the capacity those expenditures created will remain intact.
Perhaps on a related note (and perhaps not), Elon Musk also made a point of saying within the Tesla earnings conference call that as scale/output grows, variable costs are expected to go down. Although neither specifics nor a specific timeframe was discussed, he expects gross margins to ramp up to 30% as output grows. Margins were only around 24% last quarter, although that was on the low side of the recent range.
It’s an interesting — and new — aspect of the discussion from and about TSLA. In the past, before net income (non-GAAP as well as GAAP) were even a remote possibility for the company, output growth was the crux of the story. Now, however, Tesla may be hinting of true, sustainable viablity.
It’s still a big mountain to climb, to be sure. Even if gross margins ramp up from their average of about 25% now to 30% in the foreseeable future, that may still not be enough to push Tesla Motors into the black; the company lost $75 million on a non-GAAP basis in the third quarter. The company is getting closer to profitability, though, and 2017 or even late-2016 could be the point where Tesla stock moves past the fiscal and psychological tipping point.
Bottom Line for Tesla Stock
It’s still not a bulletproof name, but Tesla stock garnered a great deal of much-needed credibility after Q3’s numbers … particularly driven by the Q4 production forecast.
It remains to be seen whether Tesla can reach those lofty goals or if they’re just pipedreams. But after the stock stalled in 2014 and in the shadow of a lackluster reliability assessment from Consumer Reports, Elon Musk likely knows not to set the company up as a potential disappointment to consumers or to investors.
In other words, the production and delivery outlooks for Q4 are probably legitimate. That’s good for the Tesla stock. If and when Tesla actually reports those output and shipment numbers three months from now, that’s going to be great for TSLA.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
