Following the acquisition of sistersolarcompany SolarCity last year -- and a near record-high stock price last week -- electric-car maker Tesla plans to reveal its fourth-quarter and 2016 annual earnings on Wednesday after the market closes.
This will be the first time Tesla will reveal plans to integrate SolarCity’s financials. The results will help investors understand whether the solar installer will be a boon or a burden. Tesla has argued that the union could save the companies money in the long term through “synergies.”
Tesla’s upcoming shareholder letter, followed by an earnings call led by Tesla CEO Elon Musk, could offer detailed information about Tesla’s reservations for the Model 3, the company’s $35,000 car due out at the end of this year. It’s important for Tesla to deliver its Model 3 car on time -- and up to its high standards -- in order to beat the growing competition, assure customers and investors that it’s on track, and prove it can become a mainstream automaker.
Those two major undertakings -- a new car and a new company -- don’t even account for half of what Tesla will likely focus on in its financial reveal. The company will also likely update investors on its massive battery factory, its car shipment details and its grid battery business that has made progress in recent weeks.
Here are all the things that we’ll have our eye on for Tesla’s fourth-quarter and annual 2016 earnings announcement on Wednesday.
Tesla reportedly plans to pause production at its factory in Fremont, California sometime this month to prepare for the Model 3 in July. Reuters also reported that Tesla plans to start test production on the Model 3 this week, which would give Musk some good news to drop on the earnings call.
Tesla says it still plans to make 500,000 cars annually (including its Model S, X and 3) starting in 2018. However, the electric-car maker has a long history of missing production targets and overestimating the speed with which it can get cars to customers.
Tesla hasn’t given an update since spring of 2016 for the number of Model 3 reservations. Back then it had close to 400,000 Model 3s reserved by potential customers, who each put down a $1,000 refundable deposit. Some of those customers waited overnight outside of Tesla stores to get in line for a chance to make an early reservation -- before the design of the car was even unveiled.
Musk has called the process “the biggest one-week launch of any product ever.” Customers with late reservations might not get their Model 3 for years.
The excitement over the Model 3 is partly what’s been boosting Tesla’s stock in recent weeks. Last Tuesday, shares reached $287.39, a 52-week high.
Expect Tesla, or Musk, to give an update on the Model 3’s production progress and provide the latest reservation numbers. Will they be up? Or will customers deem the line too long at this point to even bother getting on the list?
The solar installer, led by Musk’s cousin Lyndon Rive, faced financial headwinds last year and projected a slowdown of solar installations this year. The company has consistently lost money, and its stock dropped steadily in the year before the Tesla acquisition.
Expect the earnings call to cover how the company will integrate SolarCity into Tesla’s business. Will the company fold SolarCity into Tesla Energy, or keep it as a separate solar business unit? The SolarCity brand is expected to disappear, replaced by Tesla’s brand, so don’t expect the SolarCity name to remain in the financial breakout.
Some analysts called Tesla’s acquisition of SolarCity a bailout for the solar company. But Musk said SolarCity will save the combined companies $150 million and add $500 million in cash to the combined entity's balance sheet over three years.
The companies argue that Tesla’s stores will be important sales channels for solar systems, combined with the Tesla-made grid battery packs. Some of SolarCity’s highest costs have been for customer acquisition, so reducing those costs is necessary.
Expect Musk to be rosy about SolarCity’s financials -- even though investors are skeptical. He’s begun to steer the company toward premium products, like the mysterious solar roof, and away from the race-to-the-bottom commodity of solar panels. Will Musk talk about SolarCity as a services company or a technology company?
SolarCity been pretty quiet on progress at its planned solar factory in upstate New York. Now that Musk has brought in Panasonic as a partner, will we hear about any progress on this front?
Tesla and Panasonic started making batteries at the massive battery factory outside Reno, Nevada in December. The batteries are already being used in Tesla’s grid-scale products and are planned for the Model 3 as well.
These batteries are an important way for Tesla to lower battery costs and try to meet the low cost target of its $35,000 Model 3. In a promo video, Tesla now claims it can achieve a 35 percent cost reduction through its Gigafactory -- an even more aggressive cost drop than previously anticipated.
Expect Tesla to give an update on how much construction has been completed at the Gigafactory, and what volume of the larger format batteries are now being used in packs for products. When I visited last July, construction was only 14 percent complete.
Car shipment numbers
Tesla already announced that the company shipped 22,200 cars in the fourth quarter of 2016. Last year's car shipments amounted to 76,233 units, which fell below Tesla’s initial guidance of 80,000 to 90,000.
Tesla missed its car shipment predictions for three out of four quarters in 2016. The company struggled to increase production of the Model S at the same time it started shipping the Model X, its SUV-crossover car.
Now that Tesla is adding the Model 3 to the production mix, everything is about to get more complicated. To accommodate its manufacturing boost, Tesla could double the size of its factory in Fremont.
Tesla’s shipment numbers are an important indicator of how well the company can predict and meet its goals. They could also be important when it comes to raising more funding from the public markets this year.
Musk has consistently downplayed these quarterly shipment numbers. He says it's hard to predict exactly when the company works through kinks in producing a new car.
Last month, Tesla showed off a large battery installation for Southern California Edison near Los Angeles. While Tesla is still relatively new at the grid-scale storage development business, its Tesla Energy division is growing a strong portfolio. Tesla has battery farms under construction or built in Hawaii, Connecticut, North Carolina, New Zealand and the U.K.
At what point does this business get large enough that it starts to rival the car business?
Will Musk comment on his discussions with President Donald Trump in the earnings call? He'll likely avoid that topic. But he's come under fire for staying on the president's business advisory council, so it may come up.
Musk is walking a fine line by aligning himself with Trump. While the move could put him in the good graces of Trump, it could also tarnish Tesla’s brand. So far, he's avoided the fate of Uber CEO Travis Kalanick.