On Wednesday, Tesla (NASDAQ:TSLA) will announce earnings for Q2. Even though production and delivery numbers were released earlier in the month, the numbers will still be of major importance for both existing and potential shareholders. Here are three points that I’m watching out for from Tesla.
Impact of lower deliveries
In Q1, Tesla delivered 310,048 vehicles. In Q2, this decreased to 254,695. The number was still higher than the same quarter last year, but it does highlight near-term problems that the business is facing.
Part of the lower deliveries were limited to the closure of the factory in Shanghai for three weeks back in April. The impact of Covid-19 is something that won’t go away quietly. It could easily be a problem for the business going forward.
Another issue linked with lower production was the supply chain. This is an industry-wide problem, but ultimately does negatively impact Tesla as well. If the business can’t access the parts or has issues that cause manufacturing to be materially delayed, this filters down to lower revenue.
Therefore, I think lower deliveries could have dented revenue for the quarter.
Keeping a lid on costs
Another point that I think will be really important for Tesla shares is the cost of operations. I noted the remarks of Elon Musk last month when he commented that factories in “Berlin and Austin are losing billions of dollars right now”.
It’s true that the large-scale plants in these locations are expensive to set up and to run. The business needs to ramp up production in order to offset the billions that are being burnt in operating expenses.
Given the size of the costs, I’d hope for some outlook on how the business intends to reduce its costs. This might be as drastic as cutting more staff, or trying to work more efficiently with automation.
Tesla earnings versus expectations
Finally, I’m keeping my eye out for how earnings per share (EPS) and revenue come in versus the expectations. This has been an interesting point over the past year with some Nasdaq giants. Even though the business might report growth at an absolute level, if it’s below expectations then the stock often slides.
For example, the consensus analysts’ EPS figure is $1.63. This would be a large fall from the $2.86 figure from Q1. But if the number beats expectations, it could trigger a rally in Tesla shares, even though it’s below Q1.
The numbers will likely be the driving factor behind the movement in the Tesla share price on the day. Historically, Tesla share have experienced higher volatility than average. I put this down to the fact that the business is a favourite with retail investors.
Personally, I’ll be watching the Tesla earnings report with interest on Wednesday, but will leave any decisions related to investing for my portfolio until after the dust settles.