The Model 3, Cash Burn And Autonomous Tech: What To Listen For On Tesla's Q3 Call

Cowen is projecting that “exhausting” capital needs at Tesla Inc TSLA will become more pronounced as the company announces new gigafactories in Europe and China.

Analyst Jeffrey Osborne is forecasting third-quarter revenue of $3.039 billion against a consensus estimate of $2.943 billion, which equates to 32 percent year-over-year growth, or 22 percent with the SolarCity acquisition baked in.

The analyst projects a GAAP gross margin of 18.9 percent versus a consensus estimate of 18.5 percent, a reflection of Cowen’s expectation of lower gross margins for the Model 3 due to low production numbers — as well as potential Model S and X discounts during the quarter (see Osborne's track record here).

Cowen is forecasting an EPS of negative $2.39 against a consensus of negative $2.22. The firm expects $972 million of the $2 billion in capital expenditures Tesla has guided for the second half of 2017 to occur in the third quarter, resulting in a free cash flow of negative $676 million.

Cowen remains cautious on Tesla, Osborne said in a Thursday note.

“The true long believers in the story will likely give the company until the spring of 2018 before losing patience with bottlenecks in the Model 3 ramp and the exhausting capital needs of the company,” the analyst said.

Cowen maintains an Underperform on Tesla with a $170 price target.

Tesla is scheduled to report third quarter earnings after the close on Nov. 1.

What To Watch For In Tesla’s Q3 Report

Here’s what Osborne said he’ll be listening for on Tesla’s quarterly call:

• More details on the Model 3 production bottlenecks. Tesla produced 260 Model 3s and delivered 220 of them in the quarter, well beneath the carmaker’s target of 1,500 vehicles. “In the quarterly production and delivery release, the company provided little details on what the issues were that led to the miss on production or the plan for resolving them,” Osborne said.
• Further details on Tesla’s automotive gross margins that take into consideration the impact of low Model 3 production. “We believe it will be important to the company to provide details on all three vehicle gross margins to dispel reports of discounting on Model S and Model X,” Osborne said.
• A more detailed plan on Tesla’s cash burn. Cowen’s prediction of $972 million in capital expenditures during Q3 “could prove conservative,” Osborne said. “The company raised $1.8 billion during the quarter, but still has not provided a realistic plan for capex that reflects both the company’s ambitions as well as cash generating ability.”
• Plans for level four and level five autonomous vehicles. While Tesla has said its vehicles are “future-proof” with over-the-air software updates, other manufacturers and industry suppliers “suggest that level four/five autonomous will require Lidar, which Tesla has chosen not to use, in addition to radar and cameras,” Osborne said.

Related Links: 

A Few Things Even The Tesla Bulls Still Worry About

How The Experts Reacted To Tesla's Q3 Deliveries

Photo courtesy of Tesla.