With Tesla Inc. (TSLA) – Get report In reporting their latest financial results this week, investors are looking for a key milestone that could fuel a wave of buying activity on the stock.
The electric car maker is on the cusp of listing on the S&P 500, and bulls consider it a “fait accompli,” according to Wedbush analyst Dan Ives. To be eligible for the index, Tesla needs to post a profit for the second quarter, which is the first full quarter that overlapped with the COVID-19 pandemic.
The bets are important to Tesla investors and CEO Elon Musk, as listing on the S&P 500 would trigger the purchase of index funds. But posting positive earnings this quarter is not a safe bet.
Here are some topics to look at in the next Tesla report.
1. Impact of price cuts
To help stimulate demand, Tesla announced several price cuts this year in both the United States and China. Last week, it cut prices for the Model Y unit in the United States; in late May, he cut prices across his line. Analysts don’t know if this amounts to a smart trade move or a red flag that organic demand is lagging. Accumulated Tesla quarterly revenue against the 90,650 vehicle deliveries previously reported will shed light on the impact of price cuts on Tesla’s top line. And the company’s comments on the quarter, and forward-looking statements, may reveal more about the rationale for the price cuts and how they may affect Tesla’s results in the future.
2. Free cash flow
Tesla shares have had a historic rise in recent months, despite the COVID-19 impacts. It is now the world’s most valuable automaker, with a valuation in excess of $ 300 billion. According to CFRA analyst Garrett Nelson, “[Tesla] the shares have been ahead of the underlying fundamentals and do not adequately reflect the various risks surrounding the story, including the fact that TSLA is entering a major spending cycle with the construction of Gigafactories 4 and 5. “Tesla bulls believe that the automaker can effectively scale production around the world, justifying the high valuation, but the factory projects will also “act as a significant drag on free cash flow in the coming quarters,” added the risk to the actions, he wrote, Germany and the United States, potentially Texas.
3. Demand from China
The potential for China to become a major sales market for Tesla is a key piece of the bullish thesis, and it appears that electric vehicle sales in China have rebounded from previous lows linked to COVID-19. According to the China Passenger Car Association (CPCA), Tesla sold 14,954 Model 3 vehicles in June, up from 11,095 units in May and 3,635 units in April. According to Ives, “the strong demand for China’s Model 3 remains a bright beam of light (and we believe it was a prominent clear in Q2) for Tesla in a gloomy global macro.” He estimates that Tesla could deliver 150,000 cars to China this year, and that China’s growth story could be worth “at least $ 400 a share” as production increases in the next 12 to 18 months.
4. Full year perspective
Weeks ago, Tesla told investors that it delivered 90,650 units during the three months ending in June, well ahead of the Wall Street consensus forecast of 72,000. However, it has not yet updated its year-round delivery guide. Before the pandemic, Tesla told investors that it would easily deliver 500,000 vehicles this year. About 179,000 were delivered in the first half. Last quarter, Tesla said it would “revisit” its year-round guide in its second-quarter publication, and will likely comment on what to expect on the demand side for the rest of this year.
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