Tesla third-quarter earnings: What to expect and what we’re watching for

Tesla is scheduled to report its third-quarter earnings after the market closes today. The earnings report comes at a critical time for Tesla as it prepares to begin production of the Model 3 at its new China factory.

This earnings report, its first without co-founder and CTO JB Straubel on the job, is particularly important because it could be the first time the company experiences a year-over-year decline in quarterly revenue growth.

There are some important matters — namely numbers — to watch for in the automaker’s actual earnings report. Before getting into which indicators to pay attention to, here’s a quick recap of what happened in the last quarter.

Tesla reported wider-than-expected loss of $408 million, or $2.31 per share, and generated $6.3 billion in revenue in the second quarter despite record deliveries of its electric vehicles. The company delivered 95,200 of its electric vehicles in the second quarter, a dramatic reversal from a disappointing first period. Those numbers were later adjusted to 95,356 vehicles. The record-breaking figures in the second quarter stood in stark contrast to the company’s first-quarter delivery numbers when it reported deliveries of 63,000 vehicles, nearly a one-third drop from the previous period.

What to expect

Analysts are expecting a loss of 46 cents per share and revenue of $6.42 billion, according to data compiled by FactSet. If analysts are correct, revenue would be down from $6.82 billion a year ago.

We already know that Tesla fell short of its third-quarter delivery goals. Tesla CEO Elon Musk wanted, and pushed for, deliveries to hit 100,000 vehicles for the quarter. Instead, Tesla reported earlier this month that it delivered a record 97,000 electric vehicles in the third quarter, a nearly 2% increase from the previous period, but still short of analysts’ expectations.

Tesla produced 96,155 vehicles in the third quarter, a 10% increase from the previous period.

Expect Tesla to provide updates on its China factory and give forecasts for the fourth quarter. The earnings call with analysts, which begins at 3:30 pm PT, will likely provide plenty of other headlines. Musk has a tendency to drop all kinds of news in these calls.

Among the items we’ll be watching for is any discussion on Autopilot and its “FSD” (full self-driving) program, the company’s energy business, production plans for the Model Y, status of the Tesla Semi and other often teased future models such as the Roadster and the yet-to-be-unveiled pickup truck.

Analysts will likely be hunting for any information on automotive gross margins. In the past, Tesla has said it is targeting 25% automotive gross margins for Model S, Model X and Model 3. That didn’t happen in the first or second quarter. Instead, automotive gross margins, excluding certain items, shrank to 20.3% from 24.7% in the fourth quarter of 2018. They narrowed even further to 18.9% in the second quarter.

Tesla’s margins were buffeted in the past by sales of the higher-priced (and better margin per vehicle) Model S and X. Now Tesla is in an awkward spot where demand for the Model 3 hasn’t been enough to stave off contracting margins caused by a decline in Model S and X sales. Model 3s have a lower profit margin per vehicle than the S or X.