Tesla Q2 Earnings Preview: A Focus On Profitability, China, S&P 500 Inclusion

Electric vehicle pioneer Tesla Inc TSLA is on deck to report second-quarter results after the market close Wednesday.

With the stock soaring to record highs this summer, all eyes are on whether the company's quarterly print will send the stratospheric stock higher or lower.

Tesla's Headline Numbers: Tesla which has extended its profit-making streak for three straight quarters, is widely expected to report a loss of 11 cents per share on revenue of $5.23 billion, down 17.6% year-over-year.

Wedbush's Daniel Ives, however, expects profitability on the basis of 90,000 deliveries and gross margin efficiency and cost-cutting.

Tesla skeptic Gordon Johnson of GLJ Research expects a profit of 2 cents per share on revenue of $6.1 billion.

"Potential S&P inclusion is predicated on a profit in 2Q20. So that's what TSLA will report," Johnson said in his preview of the earnings report. 

China Key To Tesla Story: The electric vehicle demand in China is beginning to accelerate, and Tesla is effectively competing with several homegrown rivals and international players with its Giga Shanghai, Ives said in a note.

The analyst said Model 3 demand in China will remain buoyant despite the gloomy global macro backdrop.

The mass market vehicle could hit 150,000 deliveries in China within a year from the production start date at the Shanghai Giga, he said.

"In a nutshell, the success in China out of the gates is a major achievement for Tesla, and if this trajectory continues will be a "game changer" for its EV penetration story over the next decade."

See also: How Tesla's Chinese EV Market Is Worth $400 Per Share

Focus Areas For Tesla Investors: Ives outlined the following as areas that investors are likely to be interested in heading into the second-quarter print:

  • Second-quarter profitability
  • China delivery trajectory
  • Model 3 demand outlook for the second half
  • Any hints around Battery Day announcements slated for late September

Tesla's Forward Outlook: Following the COVID-19 pandemic, expectations have been toned down, with the Street now estimating annual deliveries of 400,000. Wedbush's Ives expects deliveries of 450,000 for the year.

TSLA Stock: Tesla shares have advanced about 300% year-to-date, with the EV maker's valuation steamrolling past traditional automakers.

Ives has a Neutral rating and a base case price target for $1,250 for Tesla shares, while his bull-case price target is $2,000.

"This quarter is another step forward in the Tesla story as Musk & Co. must deliver to match euphoric Street expectations baked into the stock," the analyst said.

Skeptics are uneasy about Tesla's meteoric rise. 

"We believe that any intermediate-term success that TSLA might discuss during its earnings call tomorrow is now fairly reflected in the stock price," JMP Securities analyst Joseph Osha said in a note, according to Seeking Alpha. 

Tesla shares slipped by 4.54% Tuesday to close at $1,586.36.

Photo courtesy of Tesla.

Posted In: Daniel Iveselectric vehiclesEVsGLJ ResearchGordon JohnsonWedbushEarningsPreviewsTop StoriesTechTrading Ideas