Tesla, (NasdaqGS:TSLA), will announce Q4 2016 earnings today (February 22nd 2017) after the closing bell. We will consider the key factors for trading the revolutionary automakers stock.
1) Profits & Revenues
Wall Street analysts have been left somewhat confused about what to expect from todays earnings – with forecasts presenting a mixed picture. Estimates for Q4 2016 range widely from adjusted losses of 2.13USD per share all the way up to profits of 41 cents per share.** Historically, Tesla has posted a mixed bag of results – often missing and beating expectations.*
The consensus estimate for Q4 revenue is 2.18USD billion** – up almost 25% from 1.75USD billion revenues of Q4 2015.* However, Q4 2016 may actually post lower sales QoQ** given that for Q3 2016 revenue was reported at 2.29USD Billion (which was up 144.5% YoY whilst missing estimates by -60USD million). * Factoring these mixed sentiments into the next announcement leads to an expectation of moderate volatility for the short term on the share price as analysts and traders regroup and adjust their models.
2) Merger Performance
These are the first reported results since Tesla closed its 2.6USD billion merger with Solar City in November 2016. Solar City was well known for popularising leasing of solar power equipment rather than purchasing. However, over the years the company has accumulated a lot of debt on its balance sheet and faced market shifts towards ownership rather than rental.
The merger has been considered risky to many investors – with the biggest concern stemming from the weak business plan and debt position of SolarCity. These struggles suggest Tesla will have to work hard to generate value from the merger.
3) Product Launch
Investors are poised for more information about the launch of Tesla’s much anticipated Model 3 – the mass market targeted all-electric car that is planned for production from July 2017 and sale later this year. The electric car market is expected to grow at an accelerated pace over the next five years and Tesla’s ability to capture market share will be a major factor in their future growth.
Investors are waiting for an update on CEO Elon Musk’s promise of steadily growing production to reach half a million vehicles in 2018 – a goal that depends significantly on Model 3’s success.
4) Price Dynamics
Tesla has experienced sizeable gains in share price over the course of the last year – rising over 50%.* This upward trend has been supported by a strong start to the year – with Tesla up 28% for 2017.*
The price has reached an all- time high and is not showing signs of weakening – reinforced by investor confidence, capital inflows and well timed launches of new products to market.*
Although promising over the long term we might see a sideways trend for the share price given the range of uncertainty surrounding Q4 2016 earnings expectations. Even after the results are announced investors will be processing the results as there has been little to anchor forecasts upon.
5) Trump and Tesla
Tesla stock has sky-rocketed since Trump’s election in November 2016 – with Elon Musk acting as one of Trump’s advisors.* Musk has attended numerous meetings with Trump and backed Trump’s bid of Exxon CEO Rex Tillerson for Secretary of State. Although Musk’s association with Trump has had a negative impact in terms of the liberal media, in the capital markets it is a sign of a potential alliance that may lead to synergies for Tesla and its strategy moving forward.
It is also an avenue for Musk to voice his concerns directly to Trump regarding any potential policies that may be damaging to the US Tech sector. In addition with Trump as President we can expect the ratification of a number of pro- business policies – including plans to reduce corporate tax – which could directly enhance Tesla profits.
* Past performance is not a reliable indicator of future performance.
** Forecasts are not reliable indicator of future performance.
Note: information provided is based on the market research.
