The day has nearly arrived. In a little over 24 hours, electric vehicle giant Tesla (NASDAQ:TSLA) will report third-quarter earnings. But, this isn’t just any earnings. This is the earnings that everyone has been waiting for. It is the earnings that follows Model 3 production and delivery ramp.

It is also the third-quarter earnings report which is supposed to show a profit and fundamentally change the narrative for Tesla stock from “this company could go bankrupt” to “how big can this company actually be?”

Or, the report won’t show a profit, and bankruptcy concerns will linger.

In other words, this earnings report is Tesla’s moment of truth. It will either kick-start the Tesla revolution, or keep Tesla stock stuck in neutral.

I think all signs point to the former.

Tesla’s third-quarter report should be very good, headlined by robust Model 3 demand, impressive market share gains, potential profitability and dramatic improvements in cash flow. If the report is strong on all those fronts, I think Tesla stock could be in store for a big rally that takes this stock from under $300 to nearly $400 in a hurry.

TSLA’s Numbers Should Be Pretty Good

There are many reasons why Tesla’s third quarter earnings report should be pretty good. Let’s list them here:

• Tesla is destroying the EV competition and has sparked a Main Street Tesla revolution with the Model 3. Not only is Tesla selling way more EVs that anyone else, but the Model 3 also outsold all other small and midsize luxury cars in the U.S. in September 2018, and it wasn’t close. Moreover, Tesla Model 3 was the fourth best selling overall car in the U.S. in September 2018. To put that in perspective, Tesla Model 3 was the 117th best selling overall car in the U.S. in September 2017.
• It isn’t just the Model 3. Tesla Model S is climbing the rankings, too. Tesla Model S was the 31st best selling car in September 2018, versus 49th in September 2017.
• Robust growth at Tesla is happening at the same time that most other car companies are facing declining demand (of the 136 vehicles covered in this list, nearly 75% had negative unit growth in September), meaning Tesla is stealing share from other auto manufacturers.
• Tesla could be profitable this quarter, given robust Model 3 ramp at a healthy 20%-plus gross margin. Tesla has only reported a profit twice before, and those two profitable quarters catalyzed huge rallies in Tesla stock in excess of $100/share. Thus, a profit in Q3 could spark an equally big rally towards $400.
• As Citron Research points out, Tesla moved up their Q3 earnings date into October (normally, they report Q3 earnings in November). The last time Tesla did this was in 2016, and the company reported a strong quarter which healthily smashed expectations.

Overall, most signs point to this quarter being quite good — and if the quarter is good, we could see a big rally in Tesla stock.

Tesla Stock Should React Favorably

When it comes to Tesla stock, you have a heavily shorted stock with dramatically improving fundamentals that is on the cusp of profitability and about to report numbers that should be very good.

What does that mean? You could get a big rally in Tesla stock after the Q3 print. The last two times Tesla reported a profit, the stock proceeded to rally by more than $100/share over the next several months. You could very easily get a similar rally this time around, especially considering fundamentals are improving elsewhere, too.

Even if you don’t get that profitable quarter this time around, you still could see a big rally in Tesla stock. All the big idea trends are moving in favor of Tesla, with the most important of those trends being that Tesla is stealing auto market share from competitors. If that trend persists, it really is only a matter of time before scale drives profitability.

Thus, investors could focus on profitability that is coming soon, given improvements in the company’s big idea growth narrative.

Overall, then, TSLA looks good heading into the print. It isn’t without risks, to be sure. Tesla stock is never without risks. But, the risk-reward looks favorable for this beaten up stock heading into what could be a landmark quarter.

As of this writing, Luke Lango was long TSLA.