Is Tesla Set to Surprise Wall Street?


Sales of Tesla's Model S appear to have been strong during the second quarter. Photo credit: Tesla Motors.

Silicon Valley's favorite automaker, Tesla Motors , is set to report its second-quarter earnings after the market closes on Wednesday.

What should we expect?

The stage is set for a small loss...
Well, for starters, Wall Street thinks that we should expect a loss. The consensus estimate of 11 analysts surveyed by Bloomberg is that Tesla will report a loss of $0.17 a share for the second quarter.

Coming on the heels of last quarter's $0.12 per share profit, Tesla's first ever, that seems like it would be a big disappointment - except that Tesla CEO Elon Musk has warned that a small loss is likely this quarter.

During last quarter's conference call, Musk cited a few factors that were likely to weigh on earnings this time around:

  • Launching in Europe. Tesla is in the process of launching its brand and its Model S sedan in key European markets, building out its stores and ramping up infrastructure. Obviously, that costs money, and that new infrastructure wasn't likely paying for itself at quarter's end. In addition, Tesla books revenue for auto sales when the cars are "delivered", and Musk expected that a chunk of second-quarter Model S production would be in-transit to Europe at quarter's end, as many as 500 cars. In other words, it's possible that Tesla might have built 5,000 cars during the quarter, but only 4,500 of those will be counted toward the quarter's earnings.

  • That new financing program. Back in April, Tesla announced what it called (with typical subdued understatement) a "revolutionary automotive financing product" intended to give Model S buyers some of the benefits of a traditional leasing program. That announcement was widely mocked because of some silly assumptions in Tesla's marketing material, but I have argued that the program is laying the groundwork for a true leasing program in a few years. That could prove key to competing in the luxury-car space, where as many as half of all new vehicles are leased, once the initial buzz around Tesla's cars has worn off. But it could weigh on earnings in the second quarter, Musk said, because the program's accounting requirements might lead to the deferred recognition of some revenue.

  • Development costs. This one is simple: Development of the next Tesla, the Model X SUV, is ramping up, and costs may have increased in the second quarter.

Long story short, there are good reasons to think that Tesla might swing to a loss when second-quarter results are announced, and good reasons not to get too worried if that's how things pan out.

But that said, don't be even a little bit surprised if the company beats those Wall Street estimates.

...but don't be surprised if Tesla surprises
It's clear that somebody thinks Tesla is going to surprise us. The stock is down a bit as I write this on Tuesday, but over the last two weeks it has gone from around $120 a share to well over $140.

Clearly lots of investors are optimistic, and - at least in the near-term - probably for good reasons.

Tesla still has daunting challenges ahead. But it has been clear for a while that it is as good at managing Wall Street expectations as are most other high-profile Silicon Valley tech companies, which is to say quite good.

That alone leads me to predict a happy surprise. But there's more: All signs suggest that Tesla continues to execute well on its plan. I won't be surprised if second-quarter production and deliveries both come in somewhat ahead of estimates.

Long story short, I expect a good result for Tesla on Wednesday night. Do you agree? Scroll down to leave a comment and let me know.

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Fool contributor John Rosevear has no position in any stocks mentioned. Follow him on Twitter at @jrosevear. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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