It’s Tesla’s make or break time: Here’s what you need to know before tonight’s results | City A.M.
Investors are waiting with bated breath to see what Tesla brings out in its second quarter earnings report tonight, as the company nears its make or break deadline.
If you’ll be looking out for the results as markets close in the US, here’s what we think you might want to know about.
Legal issues
It emerged today that Tesla has been hit with its second lawsuit in a month, as three former employees of its SolarCity subsidiary alleged they were unfairly dismissed when they found documents that claim Tesla had faked its sales numbers to inflate its valuation.
Additionally, a separate case involving a former employee of Tesla’s car production line has now been elevated after the employee in question countersued the carmaker.
Read more: Tesla files lawsuit against former employee who hacked its systems
Martin Tripp was sued by Tesla last month, over claims he hacked company systems and passed confidential information to outside parties.
Tesla has denied both of today’s claims.
Cash flow
A month after hitting its chief executive Elon Musk’s target of producing 5,000 Model Three sedans a week, the electric vehicle manufacturer has been burning through cash to keep up with Musk’s ambitious goals.
Analysts have predicted that we’ll see this cash burn continue through the last quarter, despite Musk’s adamant stance that Tesla will not require any fresh funding before it hits profitability.
Musk had previously said the company would break-even in the second quarter, before becoming profitable in the third or fourth quarters of 2018. Tesla has gotten through $1bn in three of the last four quarters, and also has a $1.2bn debt due in 2019 that is keeping investors on the nervous side.
Read more: Tesla to double quarterly revenue but get stung by its costly Model 3
While it’s set to double its revenue to $3.94bn, consensus estimates put Tesla’s earnings per share for the quarter at -$2.79.
That’s double compared to the same period last year (-$1.33), showing its cash burn is getting worse. Forecasts for the third quarter suggest Tesla will only claw its way back to -$0.86, meaning that not only will it fail to break-even, it will also fail to hit profitability by Musk’s target.
As such, Markets.com chief market analyst Neil Wilson said this will be a key metric for investors.
China
Building a plant in China has been on Tesla’s radar for a while now, as the luxury car market in Asia continues to boom.
It was announced last month that Tesla has entered an agreement with the Chinese government to build a so-called gigafactory outside Shanghai, with the ability to produce 500,000 cars a year. Given that Tesla has produced roughly 90,000 cars so far in 2018, that’s a big step up.
Read more: Tesla is building a plant in China that can make 500,000 vehicles a year
Sources told Bloomberg this morning that the company has set aside $5bn to invest into its Chinese plant, with part of that money coming from a fundraise by local investors.
If Tesla’s results show poor cashflow in the face of prioritised production, as analysts are already expecting, it’ll be interesting to note any mentions of Musk’s China plans in the call.
The company’s share price was neutral as markets opened this afternoon.