Tesla Earnings Preview: What Wall Street's Thinking

Updated from 9:14 a.m. to include thoughts from Jefferies analyst.

NEW YORK (TheStreet) -- Though Tesla Motors (TSLA) already pre-announced how many Model S units it delivered in the fourth quarter, all eyes will be on some of the company's more closely watched metrics when it reports its quarterly results after market close, including the company's goal to hit 25% gross margins.

At the Detroit Auto Show last month, Tesla Vice President Jerome Guillen announced that the company delivered 6,900 Model S units during the quarter, 20% higher than the company's initial estimate. Tesla cited "the superlative safety record of the Model S and great performance under extremely cold conditions" as driving demand for the vehicle. The news sent shares soaring that day, and ever since then, Tesla's been a rocket ship, continuing its 2013 momentum into 2014.

Analysts surveyed by Thomson Reuters expect Tesla to earn 21 cents a share on a non-GAAP basis, generating $677.36 million in revenue.

Shares of Tesla were active in early Wednesday trading, down 2.85% to $197.90.

TSLA ChartTSLA data by YCharts

Many of Tesla's issues in 2013 stemmed from concerns about the safety of the Model S and the company's ability to meet demand. However, at least judging by the 6,900 units delivered, Tesla can satisfy consumer demand for the vehicle. The safety of the Model S is another story, as the National Highway Traffic Safety Administration (NHTSA) continues to work on the probe Tesla asked for.

The Model S has already been cleared by Germany's version of the NHTSA, the German Federal Motor Transport Authority, Kraftfahrt-Bundesamt (KBA). However, recent reports have noted that another Model S went on fire in a garage in Toronto. The company is looking into the situation.

Outside of the safety concerns and ability to meet demand, CEO Elon Musk has constantly stated Tesla is striving to reach 25% gross margins on its vehicles, excluding Zero Emission Vehicle (ZEV) credits, which governments give out for selling eco-friendly cars. During the third quarter, Tesla generated 21% gross margins, ex-ZEV credits. At the time, the company noted it could make additional progress on margins "if customers continue to purchase our vehicles with a high option take rate."

Going into the earnings print, Wall Street analysts were by and large positive on the name, with many expecting positive things to come in 2014, including the eventual launch of the Model X, Tesla's sports-utility-vehicle (SUV). Here's what a few of them had to say, prior to the report:

Wedbush analyst Min Xu (Outperform, $205 PT)

Jan. 27 note

"We see strong positives in Tesla's credible path to longer-term battery cost reduction and the Gen-III vehicle target costs, and what we believe will be a receptive buying public willing to purchase EVs while retaining reasonable expectations for these vehicles. Tesla's multi-year lead over credible competition suggests the company is well positioned to deliver an aggressive volume ramp."

Litchfield Hills Research analyst Theodore O'Neill (Buy, $222 PT)

Feb. 18 note

"As long as there is a large group of investors, who compare TSLA to a traditional automaker the stock will remain undervalued in our opinion. We feel that investors underestimate the appeal of the Model S and the sales and service experience."

Morgan Stanley analyst Adam Jonas (Overweight, $153 PT)

Jan. 22 note

"The company disclosed it has surpassed its own revenue expectations for 4Q by 20% on 6,900 units delivered of Model S. All eyes will be on the gross margin (25% target) and the order book into 2014.

Investors should pay close attention to any commentary on initial deliveries to Europe and the startup of Asian deliveries. Given the 4Q run-rate, it appears as if our 2014 full year Model S volume estimate of 33k units is looking conservative."

Bank of America Merrill Lynch analyst John Lovallo (Underperform, $65 PT)

"We recently estimated that Tesla would need to sell approximately 330K vehicles per year by 2020, or 15X expected 2013 volume, to begin to justify a $161/share price (see Giving credit where credit is due, but remaining realistic). We note that Tesla's current market price is now 10% higher, which we believe translates into the need for even greater volume to reasonably support the stock valuation. Furthermore, our forecasts incorporate luxury vehicle EBIT margins of about 11.5% by 2020, which appears a stretch given that the majority of the company's sales will likely be attributable to the more mass market oriented Gen 3 model by that time. Furthermore, today's announced China pricing strategy could add further pressure to margins and returns, versus the market's optimistic assumptions. In short, we believe significant fundamental headwinds confront Tesla's current stock price and that another sharp correction could be forthcoming. As a result, we reiterate our Underperform rating and $65 price objective."

Jefferies analyst Elaine Kwei (Buy, $190 PT)

Jan. 15 note

"Yesterday's 4Q delivery announcement was unexpected and surprised to the upside. For the last several quarters, TSLA has beaten their delivery guidance by a few hundred units, and based on VIN checks at stores in California last month, we were modeled at 6,000 Model S deliveries in 4Q. The 6,900 result reflects strong demand in the US and Europe. Total shipments for 2013 were roughly 22,450 compared to prior guidance of 21,500. Although the company declined to break out international sales, we estimate roughly 2,000-2,500 were delivered outside of the US. No information was provided with regard to margins or other 4Q operating results."

 

--Written by Chris Ciaccia in New York

>Contact by Email.

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