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Tesla, Inc. Earnings: What to Watch

Just a few days after Tesla's (NASDAQ: TSLA) important launch of its Model 3, it's time for investors to turn their attention toward the electric-car maker's quarterly financial results. Tesla is scheduled to report its second-quarter results after market close on Aug. 2. 

With Tesla's stock rising about 8% in the past three months and 36% in the last six months, investors will be watching the report closely. Three areas, in particular, will be worth checking on when Tesla's second-quarter results are posted: automotive gross margin, capital expenditures, and vehicle sales guidance.

Tesla's expected vehicle sales growth will come into focus when the electric-car maker reports its second-quarter results. Image source: author.

First, here's a look back at the numbers from Tesla's most recent quarter.

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Revenue

$2.7 billion

$1.1 billion

135%

Adjusted automotive gross margin

27.8%

20.2%

760 basis points

Adjusted EPS

($1.33)

($1.46)

$0.13

Capital expenditures

$553 million

$217 million

155%

Data source: Tesla's first-quarter shareholder letter. Table by author.

Automotive gross margin

Both Tesla's GAAP and non-GAAP automotive gross margin increased significantly on a year-over-year basis in Tesla's most recent quarter. Its GAAP automotive gross margin increased by 340 basis points and its non-GAAP automotive gross margin, which excludes the impact of stock-based compensation and zero-emission vehicle credits, increased by 760 basis points.

But Tesla doesn't expect its automotive gross margin to stay this robust in Q2. Management forecasted a 250-basis point sequential decline in its adjusted automotive gross margin for Q2. Since Q1 benefited from a one-time instance of recognizing revenue for Enhanced Autopilot from previously delivered cars as the company activated the feature for the first time, Tesla management warned that the absence of the one-time benefit will drive the key metric lower in Q2.

Importantly, management does anticipate lower vehicle costs during the quarter as Tesla continues to improve manufacturing efficiencies. But these improvements will be overshadowed by the headwind from a sequential comparison with a one-time benefit.

On a year-over-year basis, Tesla's guidance for its adjusted automotive gross margin implies an impressive 340-basis point increase, showing how Tesla is benefiting from greater manufacturing efficiencies and improved economies of scale.

Capital expenditures

Ahead of Tesla's Model 3 launch, the electric-car maker's capital expenditures are soaring. This was evident in Tesla's first quarter when capital expenditures jumped 155% year over year to $553 million. But Tesla's second-quarter capital expenditures should rise even further.

Tesla said it expected year-to-date capital expenditures to climb to $2 billion by the time it started Model 3 production. Since the first Model 3 rolled off Tesla's production line a few days after its second quarter ended, much of these expected $2 billion in expenditures were likely incurred during Tesla's second quarter.

With Tesla having already spent over a half a billion dollars on its capital expenditures in Q1, investors should look for around $1.4 billion of capital expenditures in Q2.

Vehicle sales guidance

Since Tesla had already reported its vehicle deliveries for Q2, investors should look for an update on management's guidance for the rest of the year.

Though Tesla's just-launched Model 3 is expected to drive major vehicle sales growth for the electric-car maker, Tesla's Model S and Model X sales seem to be hitting a ceiling. For instance, though Tesla's second-quarter deliveries were up 53% year over year, they were notably down 12% sequentially. Further, management's guidance for deliveries in the second half of the year to "likely exceed deliveries in the first half of 2017" suggests the company isn't anticipating much sales growth for the two vehicles.

So how much can the Model 3 help sales growth in the second half of the year? Tesla CEO Elon Musk has already given investors some insight into what to expect from Model 3, recently forecasting about 100 Model 3 deliveries in August and 1,500 in September. By December, Musk thinks Tesla will be delivering 20,000 vehicles a month. 

Model 3. Image source: Tesla.

Investors should look for Tesla to provide an update on its outlook for Model S and Model X vehicle deliveries, as well as for its expectations for its Model 3 deliveries as the company ramps up production.

Tesla will report its second-quarter results after market close on Wednesday, Aug. 2.

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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.