Tesla Fourth-Quarter Earnings: What To Watch For

February 7, 2018, 6:56 PM UTC

One day after billionaire entrepreneur Elon Musk’s private rocket company SpaceX successfully launched the Falcon Heavy, a more sobering moment has arrived: fourth-quarter earnings for Tesla, his electric vehicle company.

The glow of SpaceX’s success—which included the cross-promotional inclusion of Musk’s Tesla Roadster inside the payload fairing that caps the Falcon Heavy rocket—will surely infiltrate Tesla’s quarterly earnings call with analysts, which is scheduled for after the market closes Wednesday.

But hopefully, they’re also focused on what Fortune is focused on: cash flow, capital expenditures, and Model 3 production. Not to mention a few promises Musk has made in the past year, including plans to double the number of electric vehicle chargers in its network from 5,400 to more than 10,000.

Model 3 Production and Deliveries

Tesla has struggled to ramp up production on the Model 3, its mass-market electric car. Musk handed over the first batch of its new electric cars to employees during a splashy event in July 2017, but production (and deliveries) have fallen short of expectations due to bottlenecks at its factory.

It’s not just about the ability to produce the vehicle, though. It’s also a question of whether Tesla can lock in the gross margins on the cars, too.

Tesla produced 2,425 of its new Model 3 electric cars in the fourth quarter and delivered 1,550, missing Wall Street expectations. Musk has dialed back the company’s mass manufacturing goals as he tries to solve production bottlenecks.

The biggest issue (at least according to Musk during the third-quarter earnings call on Nov. 1) is with the new type of battery the company is building in order to cost-effectively produce the Model 3. A problem with a subcontractor, compounded with other issues, forced Tesla to start over in certain areas, delaying production.

Look for Musk to share whether Tesla has made progress on that front.

Cash Burn and Replenishing Revenues

Tesla is burning through a lot of money in its push to produce the Model 3 and increase its battery output.

“Margins and cash generation will be an issue for Tesla for the years to come,” Barclays analyst Brian Johnson said in research note in January.

Part of the issue is that the company also has a myriad of other projects that are sucking up money—and fast. Tesla is ramping up production of its solar tiles and working on new models, including the Tesla Semi truck and Roadster.

Investing money back into the business and burning through cash to roll out a new product is typical for a growth company. Tesla, though, us burning through cash at record rates.

In the second quarter, Tesla burned through about $1.2 billion. In the third quarter, Tesla it was a record $1.4 billion. Last year, Bloomberg calculated that Tesla was spending $8,000 a minute.

To be clear, the company is generating revenue through sales of its Model S sedan, Model X SUV, and Model 3 vehicles. Tesla generated nearly $3 billion in revenue in the third quarter. But the company ultimately lost money last quarter—$619 million for the period. And there’s only so long a company can lose more than its generating.

Tesla can turn back to the market to raise additional capital, a move analysts expect. For instance, it increased its bond deal to $1.8 billion last year.

The company also has another unusual source for its reserves: customer deposits. It brings in money through customer deposits on future products, a tactic that many say is unsustainable. Tesla took in $686 million in customer deposits in the third quarter. And that was before it debuted the Tesla Semi and next-gen Roadster in November, both of which have a reservations page. Roadster customers must drop $50,000 to make a deposit or if $250,000 if they want to reserve a founder’s series version.