Tesla First-Quarter Earnings: What Investors Will Want To Watch For

May 2, 2018, 5:12 PM UTC

Tesla CEO Elon Musk has spent the last three months as booster and defender, prognosticator and instigator of the electric automaker that he has described as a drama magnet. The billionaire entrepreneur stands at the center of a tornado. Swirling about him are Model 3 production issues, three investigations between two federal organizations, and a near never-ending cycle of new, grander ideas and plans that often buoy the stock in the short term, while threatening to further sap the company of much-needed cash down the line.

Tesla shares have taken a hit as a result. The share price is down more than 6% from the beginning of 2018. However, shares are better off today than in March, when then fell 19% to $266.13. Shares have since recovered to $300.75 as of 12:30 p.m. EST Wednesday.

After the market closes Wednesday, Tesla will report its first-quarter earnings—numbers that investors hope will allay fears that the company’s finances are sound. But what many on Wall Street will be waiting for is to hear directly from Musk on the analysts’ conference call.

The focus will likely be the Model 3, the mass market electric vehicle that Tesla’s future is riding on. Specifically, investors will want more transparency from Musk about problems with production, including specifics on how they will be solved. Musk has said that a reliance on automation and a complex assembly system that had to be scrapped at their Fremont, Calif., factory is largely to blame for the production slowdown. But he’s also blamed issues with battery production at Tesla’s gigafactory near Reno.

The Model 3 isn’t the only product or problem looming over Tesla. The company has multiple products and tens of thousands of employees, some of whom have been pushing to unionize. The Model 3 might be casting the largest shadow at the moment. However, investors should also want to hear about progress on Tesla’s other products.

The top items we want to hear about:

  • Autopilot: what’s the status in the development of the company’s semi-autonomous driving product. Tesla customers are spending $5,000 on the promise of full self-driving. Where is the company on this path?
  • Product quality: Solving the Model 3 production doesn’t just mean producing more. It means producing more vehicles that meet or exceed industry standards. Initial batches of the Model 3 have had fit and finish issues that include gapping in the panels and inconsistent paint quality.
  • Worker safety: Musk wants to rely more on humans and less on automation. But safety issues are already a chronic problem at the factory, according to a recent investigation by Reveal.
  • Solar: Tesla bought SolarCity in 2016 and announced a new solar roof product. But that $2 billion acquisition came with a $2.9 billion debt load.
  • China factory: Tesla has long viewed China as a ket market, but it has yet to build a factory there. Recent changes in Chinese policy would allow foreign automaker to build cars in China without a joint venture with a local partner, removing a key barrier for Tesla.
  • Tesla Y: Remember the crossover?

Importantly, can Tesla work through all of these projects and problems without running out of cash? Musk has insisted that Tesla will not need to raise more money in 2018. But others have their doubts. An analysis by Bloomberg found the company spends more than $6,500 every minute and has had negative free cash flow for five quarters. Supporters of Tesla argue that growth companies like Tesla are expected to spend more money than it makes.

Tesla ended 2017 with $3.37 billion in cash and cash-equivalents and $9.4 billion in outstanding debt.

As a reminder, Tesla reported in the fourth quarter a net loss of $675.4 million, which widened from $121.3 million a year earlier.

Tesla did report higher-than-expected revenues of $3.29 billion in the fourth quarter, a nearly 10% increase from the previous quarter of $2.98 billion.