Tesla Earnings: The Three Big Questions Elon Musk Faces Today

November 1, 2017, 4:18 PM UTC

Tesla reports third-quarter earnings Wednesday after the market closes. Tesla CEO Elon Musk will likely talk about year-end delivery goals, the company’s massive battery factory in near Reno, Nevada, maybe even its energy storage and solar efforts in places like Puerto Rico.

But all anyone really cares about is Model 3 production. Specifically, what it will take to get more of these mass-market electric cars off the line and into customers’ driveways and the company’s strategy to avoid the same mistakes it made during previous vehicle production ramp ups. For instance, labor unrest and a rise in worker injuries emerged in 2016 as a direct result of Tesla trying to meet ambitious production targets it set for the Model X sport utility vehicle.

Tesla’s production problems were revealed in early October when the automaker reported it had produced just 260 of its new Model 3 electric cars in the third quarter, of which it delivered 220. It was a dramatic miss for Tesla and Musk, who personally predicted that the company would produce about 100 Model 3 cars in August and more than 1,500 in September.

Days later the Wall Street Journal, citing unnamed sources, published a damning report that as recently as September major portions of the Model 3 were being built by hand, not an automated production line.

Tesla’s Model 3 production problems stem from a small number of suppliers that have failed to deliver on time, according to Oppenheimer & Co., which issued an analyst note in mid-October. The note said at at least one of those suppliers has been fired. However, some dispute those claims, noting that Tesla was to blame.

Ramping up Model 3 production is not just an automation conundrum. It’s a money and labor problem as well. Expect Musk to be asked specifically about these two areas during the earnings call Wednesday. The cash outlook question will be particularly important.

Tesla burned through about $1.2 billion in cash in the second quarter. Then it sought to raise some $1.8 billion through a bond offering, leaving it with about $5 billion or so in cash, says UBS analyst Colin Langan.

Barclays expects Tesla will report it burned through $1.6 billion in the third quarter, numbers offset by its recent $1.8 billion debt raise and likely sale of SolarCity project cash flows.

There are of course, other issues and questions beyond Model 3, notably when will Tesla’s “enhanced Autopilot” feature have the same capabilities as its previous generation Autopilot 1 version? Tesla charges $5,000 for enhanced Autopilot, which provides several advanced driver assistance features that when combined provides what some describe as “semi-autonomous” capabilities. It’s supposed to allow Tesla vehicles to drive keep within a lane, match speed to traffic conditions, and automatically change lanes without requiring help from the driver.

Tesla charges another $3,000 for full self-driving capability, and there are no signs of that coming anytime soon, ” – a point recognized now by some of Tesla’s fans in the media,” Barclays analyst Brian Johnson said in a research note Tuesday.

As a refresher, here’s a snapshot of Tesla’s second quarter earnings ended June 30.

  • Tesla’s quarterly revenue expanded and beat Wall Street’s estimates, as deliveries of its high-end all-electric Model S sedans and sports utility vehicle Model X grew.
  • Tesla’s net losses attributable to shareholders widened to $336.4 million from $293.2 million a year earlier. On a per share basis, net loss attributable to shareholders narrowed to $2.04 from $2.09.
  • Revenue rose to $2.79 billion from $2.7 billion in the first quarter, beating analysts’ average estimate of $2.51 billion.
  • Revenue was more than double the $1.27 billion Tesla earned during the same quarter in 2016.