Tesla earnings: Model 3 is still the issue investors care most about

Wall Street is starting to sound like a broken record when it comes to Tesla Inc., but until the Silicon Valley car maker finds its groove, there’s only one thing that matters.

Yes, the Model 3.

Tesla TSLA, +2.06% is scheduled to report fourth-quarter results after the bell on Feb. 7, and investors are sure to parse every word the company utters about the Model 3 production ramp.

“Our concern has been really the same since September,” said David Kudla, Chief Executive of Mainstay Capital Management. “It’s the Model 3 and production delays that continue to be delayed even further. Are they going to delay again, or are they going to make progress?”

Tesla recently filed to do its first asset-backed securities deal, and the company has moved to quash renewed concerns about its production.

Meanwhile, its stock performance continues to outperform benchmarks and competitors, even through the company is expected to report a wider loss for the quarter.

Tesla shorts, or those investors betting the stock will turn lower, have lost about $1.3 billion so far this year, according to recent data from financial analytics firm S3.

Here’s what to expect:

Earnings: Analysts surveyed by FactSet expect Tesla to report an adjusted loss of $3.06 a share in the quarter, compared with an adjusted loss of 69 cents a share in the fourth quarter of 2016.

Estimize, a crowdsourcing platform that gathers estimates from Wall Street analysts as well as buy-side analysts, hedge-fund managers, company executives, academics and others, has projected an adjusted loss of $3 a share.

Revenue: The FactSet revenue consensus is $3.3 billion, which would be up from $2.3 billion in the same quarter last year. Estimize has the same consensus.

Stock reaction: Tesla’s stock has gained more than 41% in the past 12 months, which compares with gains of around 24% for the S&P 500 index SPX, -0.03% and 32% for the Dow Jones Industrial Average. DJIA, +0.15%

It also leaves in the dust the stock of competitor General Motors Co. GM, -0.87% which has gained 16% in the same period. Tesla stock gains contrast with losses of more than 11% for Ford Motor Co. F, -1.04% stock.

Other issues: Chief Executive Elon Musk has taken to twitter to market the latest product of The Boring Co., the company he started with the aim of boring underground tunnels to ease traffic congestion: Flamethrowers.

“I’m the first to admit Musk is a genius,” but it is unclear whether making money is his goal for Tesla, Mainstay’s Kudla said.

“We still don’t know what’s happening with the manufacturing process,” he said, adding that he has shorted Tesla in the past year and made profits.

There will always be people who love Tesla like they love Apple Inc. AAPL, +0.16% and will give the company and its CEO pass after pass but for its products and cachet. But ultimately, the company has to make money to be taken seriously,” he said.

Tesla and Musk recently agreed to tie the CEO’s 10-year compensation plan to ambitious goals for the company, including growing to a market capitalization of $650 billion, more than 10 times the company’s current market value.

The announcement could have alleviated “rising concerns over key man risk,” analysts at Nomura said in a recent note, as the new plan requires Musk to remain CEO or serve as both executive chairman and chief product officer in order for stock-vesting schedules to trigger.

Tesla in early January reported lower-than-expected fourth-quarter deliveries, and pushed back for a second time the goal of producing Model 3s at a rate of 5,000 a week. That goal post, first set for 2017, then for the first quarter of 2018, has been moved to the second quarter of the year.

The fourth-quarter report will be a “de-risking event” as Model 3 production continues to ramp, analysts at Baird said in a note Tuesday.

“We are buyers ahead of (fourth-quarter results,” they said. “We believe (Tesla’s) recent decision to push out production targets has de-risked the stock, and the Q4 report could remove another overhang.

Positive reviews of the Model 3 are likely to coincide with more deliveries to non-employees, which should strengthen demand and drive company shares higher, the analysts said.

Tesla can fund the Model 3 ramp without raising additional capital, but a capital raise would remove an additional overhang, they said.

Baird analysts updated their calls for 2018, saying they expect an adjusted loss of $1.57 a share for the year, which compares with FactSet consensus for an adjusted loss of $4.16.

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