Tesla [TSLA] FUD: The Earnings Are Coming!

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The goal of this series is to examine current topics being written about Tesla [TSLA] that appear to be stirring up “Fear, Uncertainty and Doubt” (or FUD). The plan is to try to provide reasonable analysis about the validity of the claims. I generally do not link to the articles that “inspire” me to write this, as I do not wish to reward analysis I feel is poor with increased traffic. However, I will freely admit that my analysis may contain incorrect assumptions, and will do my best to acknowledge them in future articles.

There are a slew of articles right now telling wildly different stories about what we should expect when Tesla reports its earnings on October 23rd after the bell. Articles have ranged from negative spin to positive spin. The negatives mostly seem centered around wondering if Tesla’s revenues may have gone down as the product mix became more Model 3-centric, and the positives are about how many analysts have been revising their earnings expectation up lately.

I thought I’d share my quick expectations on what I will and won’t be looking for tomorrow.

Before I dive into that, my (updated!) boilerplate:

As of a recent article, I purchased an additional 7 shares of Tesla to now own a total of 15 shares of the company. I am open to increasing my position in the company, although I have no plans to do so at this point in time. I would not suggest anyone use the following article as their sole data point to decide to invest nor sell shares in Tesla. I write these articles simply to give a Tesla-investor’s perspective into how I analyze the company.

What I’m Not Looking For

I don’t think that earnings matter this quarter. At all.

Q3 was a weird quarter for Tesla, mostly because it was very quiet about its plans. We saw no major product announcements and we had no investor days to learn new information. Instead, Tesla has been talking by building and delivering its vehicles at the fastest rate it can, while also bringing a huge factory in China to the point of production — so it appears.

And therein lies the difficulty with earnings. Tesla has so many different pots in the fire that I think it is extremely hard to just look at the earnings and see how the company is doing. In fact, for the first time in the last three years, I think that the earnings won’t tell much of any part of the story.

What I Am Looking For

I do, however, want to know how that story is going. Here’s a set of bullet points about what I want to find out more about, ordered from what I most expect to hear about to what I least expect to hear about:

• Gigafactory 3 Update — I assume that Tesla is doing everything that it can right now to ensure that Model 3s are rolling out of the factory before the call tomorrow. I hope to hear more about how Tesla execs expect production to spool up, and the margin they expect to make from vehicles produced here.
• Solar Business — Tesla’s solar business had fallen off a cliff and it seemed like Tesla had decided not to focus on it at all. Since the last quarter, though, Tesla started to grant the ability to rent a system cheaper than the price of electricity. I expect this will drive a lot of growth in the markets it is available in.
• Insurance Business — It’s kind of stunning that it was just two months ago that Tesla introduced its own insurance product, and although Musk had mentioned it before, we haven’t really learned much about it. I am curious to see how they feel this system will work, and what the possibility looks like for expansion in the future.
• Battery Production — There has been a lot of noise involving Tesla and batteries lately, from the company patenting a battery expected to last more than a million miles, to the reports from South Korea that Tesla will be making its own batteries, to the recent acquisition of Hibar Systems, it seems like this is the next big step. Based on the issues with Model 3 production that were linked to battery production, the fact that Tesla likes to vertically integrate everything, and the point that batteries are by far the largest piece Tesla hasn’t yet vertically integrated, I expect to hear some new news here. I also expect that in-house battery production is why we haven’t yet seen an official timeline for the Tesla Semi.
• Model Y Production — I don’t expect Tesla to reveal a definitive timeline for the beginning of production, but I do expect the team will share where they stand on production right now. I personally expect they are starting to test systems for that production, and I hope that they will share something about anticipated margins for the Y with what they have learned about it since the Model 3 unveiling.
• Tesla Semi — I mentioned before that I think that we haven’t yet heard more about the Semi because my hunch is Tesla is going to bring battery production in house before beginning battery production. I think that the Semi is one of the most important vehicles for the transition to sustainable energy that there is, and will work wonders for publicity when it is available.
• Grid-Based Battery Backup — I put this one down lower only because I think it’s not as interesting of a topic for anyone to talk about, but I expect to see continued growth in this category.
• Tesla Truck Timeline — I realize that the company won’t be unveiling the Tesla Truck until sometime next month, but a timeline on how soon they expect to bring it to market would be very interesting.  It appears that there will be some competition in this segment in the not too distant future, and the sooner that Tesla can produce it, the better.

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Conclusion

For all of these reasons, I think that at the moment the biggest story with Tesla is simply going to be the story of what it is working on. Right now, the company is definitely leading in a space that is becoming more and more apparent that additional automakers will be moving into heavily in the near future. Tesla has a huge advantage right now, and it seems more important to find out how it is capitalizing on its advantages instead of worrying whether the company made a couple cents per share or not.

The transition to sustainable energy is accelerating, and I think the best thing for Tesla, its mission, and quite frankly, its shareholders, is to put the company into Plaid mode.

No matter what, I think this earnings call will be the most interesting one in the last three years at least.

Did I miss anything you’re hoping to hear? If so, leave me a comment about what else you are hoping to find out about tomorrow!