Like most other stocks, Tesla Inc (NASDAQ:TSLA) has skidded on the sudden market correction. Yet the impact hasn’t been too bad. Tesla stock is off about 7.6% during the past few days.
But tomorrow things could get even more volatile. The company will announce its fourth-quarter results, which will be released after the market closes. Considering that the company is in the midst of a major launch of the Model 3, there could be considerable risk for Tesla stock.
Tesla Stock Earnings
The Steet is forecasting revenues to jump by 43% to $3.3 billion and the adjusted loss is expected to hit $3.15 per share.
Although, for holders in Tesla stock, the real focus will be on the performance of the Model 3. Already this vehicle has gotten off to an awful start because of production issues. During the third quarter, the deliveries came to a dismal 1,550. Note that Tesla had originally forecasted that the volumes would reach 5,000 per week by the fourth quarter!
The saving grace, though, was the continued strength with the Model S and Model X. In all, the third quarter saw production hit 29,870.
In light of all this, Tesla had no choice but to revise its own forecast for the Model 3. Now the company is looking at deliveries of 5,000 per week by the end of the second quarter.
This is how Tesla put it in a press release:
“While we continue to make significant progress each week in fixing Model 3 bottlenecks, the nature of manufacturing challenges during a ramp such as this makes it difficult to predict exactly how long it will take for all bottlenecks to be cleared or when new ones will appear.”
While investors in TSLA stock have generally given a pass on the production levels, the delays are still something to worry about. First of all, there may be a need to tap the capital markets so as to deal with potential shortfalls in cash flows.
Next, the consumer demand may start to lag. After all, there will likely be a long wait to get a vehicle. In the meantime, other automakers — like General Motors Company (NYSE:GM), Daimler AG (OTCMKTS:DDAIF) and Ford Motor Company (NYSE:F) — will be able to capitalize on this.
And finally, the focus on the fixing the manufacturing problems may mean less time to devote on the Model S and Model X, which could mean pressure on the growth rate.
Now it’s true that CEO Elon Musk has a solid track record when it comes to taking on tough challenges. But then again, he has quite a bit on his plate right now. Keep in mind that Tesla must manage complex businesses like battery production as well as the SolarCity division.
Musk then has extracurricular activities, like being the CEO of SpaceX and an investor in various startups. For example, he recently sold flamethrowers to help fund one of his ventures!
Bottom Line on Tesla Stock
Tesla recently changed its compensation structure for Musk. And the plan is certainly spot-on. A key part of it is based on the market cap of Tesla stock – with a stretch goal of a staggering $650 billion. Currently, the value is $55 billion.
But as for the short-run, the situation could be dicey. If the Model 3 production continues to languish, TSLA stock could be vulnerable. It will get tougher for investors to remain upbeat. Hey, might there be fundamental issues with the business?
Besides, TSLA has been known to be too enthusiastic with its forecasts. So given the importance of the Model 3 and the nagging issues, it’s probably best to wait out the earnings report.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
