Tesla (NASDAQ:TSLA) has moved its earnings release up a full week. Investors are taking that news as a positive. On an ugly day for the markets, Tesla stock has gained over 10%.
The decision to move earnings up is an odd one, for sure. That’s particularly true given the relative lack of notice (less than 48 hours). But it doesn’t take much time on Twitter (NYSE:TWTR) to see that Tesla CEO Elon Musk can be impetuous. Clearly, investors are betting that Musk and Tesla simply cannot wait to deliver good news in what it is the most important Tesla earnings report in years, if not ever.
I’d be careful about taking that bet, however. Like everything else surrounding TSLA stock, bulls and bears see the news as very different. And whatever Q3 results will show, attention almost instantly will turn to the next quarter. That’s still the core problem for Tesla — and for Tesla stock.
Why the New Earnings Date is Good News for Tesla Stock
The case for buying TSLA stock ahead of earnings is that Elon Musk simply wouldn’t move up the release if it were releasing bad numbers.
After all, anyone remotely familiar with TSLA understands how important this Q3 is. This is the quarter when the Model 3 ramp is supposed to lead to sustainable GAAP profitability and positive free cash flow. If Tesla hits that bogey, a number of the concerns around Tesla stock start to vanish. The capital raise TSLA bears insist the company needs? Not an issue. Musk’s history of overpromising? It’s in the past.
Human nature suggests that Tesla would want to move up the report only if it had good news. So does Musk’s attitude toward the market. What better way for Musk to deliver his long-promised “burn of the century” to short sellers than to not only hit profitability — but move up the release to force those shorts to scramble?
And what news we have on Q3 looks modestly positive, at worst. Tesla’s production numbers for the Model 3 were in line with guidance, at over 53,000. At the end of the quarter, Musk wrote in an email to his employees that the company was “very close to achieving profitability”. If that end of quarter burst got Tesla over the hump, Tuesday afternoon’s release could send Tesla stock soaring.
The Risks to TSLA Stock
There are three key risks to TSLA stock in Tuesday’s report. The first is history replaying itself. For all of the complaints about “short-termism” from Musk, Tesla and shareholders, and the endless debates about quarterly numbers, the market is taking the long view toward Tesla stock. Tesla still has a market capitalization of $45 billion, after all — higher than both Ford (NYSE:F) and General Motors (NYSE:GM). (GM’s enterprise value, which includes net debt, does remain higher than that of Tesla.)
And as we saw after Q2, the market can sell good news. Remember that Tesla, to much fanfare, hit its target of producing 5,000 Model 3 vehicles in the last week of the quarter. (Kind of.) The market promptly sold the news, and Tesla stock would drop almost 20% in the ensuing four weeks.
The second risk is that the shift in the Tesla earnings date is being driven by factors beyond profitability. Does Tesla need more time to raise the capital it doesn’t need? Has a private placement of equity been made — that buyers want done as soon as possible to protect against further volatility in the broad market? There’s enough going on beyond earnings to suggest that there might be motives beyond a desire to get good numbers out quick.
What About Bad News?
It’s not guaranteed that the change in the Tesla earnings date is good news, after all. It’s worth pointing out that Musk only said the company was “close to” profitability at the end of the quarter. Electrek, a reliable and friendly source of news surrounding the company cited a “near-profitable” quarter in its release on Tuesday. The third risk here is that the news simply isn’t that good, and that Tesla — for whatever Musk’s reasoning — wanted to get bad news out early, in an effort to shape the narrative.
It’s worth remembering that Musk didn’t just promise profitability in Q3. Rather, Q3 is supposed to be the end of Tesla’s ramp and its cash-burning ways. Musk said on the Q3 conference call that Tesla would be “sustainably profitable from Q3 onwards”.
With all the news surrounding Tesla stock — whether clear problems in service, manufacturing defects, rebates from suppliers, or inability to give refunds — I remain hugely skeptical that Q3 will show ‘sustainable’ profits and cash flow. And even with the new date, I’m not convinced Tesla earnings are going to prove that this company is on the right track.
A Big Day on Wednesday
After all, for all the noise here, it’s important to remember what Tesla has to do. It has to manufacture cars better than anyone else in history. Its valuation is based on hitting gross margin targets. No less a bear than Citron Research — who has shorted not only Tesla, but big names like Bausch Health (NYSE:BHC) and Shopify (NYSE:SHOP) — turned bullish on Tuesday in highlighting those targets.
That kind of profitability depends on Tesla doing pretty much everything better than pretty much everyone else. Right now, is it even doing anything well? Executives are fleeing. Musk is micro-managing. Earnings dates are being moved.
For Tesla to support its current valuation, it needs to be on top of everything, watch every dollar, and execute better than perhaps any manufacturer in history. I don’t see that occurring at the moment. In fact, no matter whether Tesla earnings are on Wednesday or in mid-November, I don’t see that occurring any time soon. But on Wednesday, we all will find out how much progress has been made.
As of this writing, Vince Martin has an out-of-the-money bearish option position in Tesla. He has no positions in any other securities mentioned.
