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Tesla (TSLA) will be holding its Q2 2020 Earnings Call this Wednesday, July 22, at 2:30pm Pacific Time or 5:30pm Eastern Time. Tesla’s financial results for the second quarter have been highly-anticipated because it could dictate whether the EV automaker gets included in the S&P 500 index.
Inclusion in the S&P 500 could be a game-changer for Tesla and its future. As the Earnings Call looms closer, analysts and investors have started sharing their forecasts and predictions for the second quarter financial results.
According to The Street, some factors analysts might be looking closely at include:
1) The impact of price cuts
Tesla reduced the price of the Model S Model X by US$5,000 and the Model 3 by US$2,000 in Q2. Reactions towards Tesla’s price cuts have been mixed among analysts. Some wonder if the price cuts were a sign that demand for Tesla dropped. TSLA bulls and supporters, on the other hand, see the price cuts as a positive sign because Tesla has always worked towards making EVs more affordable even before the pandemic.
2) Free cash flow
Analysts worry that Tesla’s construction of Gigafactory Berlin and the Cybertruck Gigafactory could weigh heavily on the company and affect its free cash flow.
3) China demand
Giga Shanghai has significantly and consistently contributed to Tesla’s quarterly financial results since it officially ramped production earlier this year. Dan Ives from Wedbush forecasted that the exponential growth Tesla could see in China might add to the company’s stock worth by at least US$400 per share.
4) The full-year outlook
Tesla still hasn’t updated its 500,000 vehicle guidance for 2020. So far, Tesla has delivered 179,000 for the first half of the year.
TSLA Investors Share Their Forecasts
David Lee predicted that Tesla would report the following results:
- US$60 billion profit
- US$1.2 billion in Gross profit, depending on regulatory credit sales
- US$850 to US$900 million in operating expenses with $200 million in other expenses
Lee believes Tesla could report a Q2 profit and become eligible for S&P 500 inclusion. He gave three reasons for his prediction.
The first reason was Tesla’s strong deliveries which Lee believes means strong revenue for TSLA. He explained that the Model Y delivery ramp and Giga Shanghai’s production/delivery ramp could have yielded higher margins for Tesla, counterbalancing the price cuts to the Models S, 3, and X in the United States.
He also stated that Tesla might be able to include some of its deferred Full-Self Driving (FSD) revenue in its income statements given the features and functionalities it released for FSD in Q2. For the second reason, Lee argued that the Fremont Factory’s shutdown in early Q2 might have lowered some of Tesla’s factory expenses.
Regulatory credit sales were the third reason Lee believes Tesla could report Q2 profit. In the first quarter, Tesla reported that it made over US$350 million in revenue from regulatory credits. Lee speculated that Tesla’s regulatory credit deal with Fiat Chrysler started in Q1 2020 which was why TSLA’s regulatory credit revenue spiked last quarter.
Gali Russell from HyperChange also stressed the significant contributions regulatory credits could make in Tesla’s Q2 financial results. Russell echoed Lee’s speculations and concluded that Fiat’s deal with Tesla might have gone into effect during the first quarter. Russell calculated that the US$2 billion Fiat deal could give Tesla about $250 million in regulatory credits per quarter for about two years.
Russell’s predictions for TSLA Q2 2020 were as follows:
- Total revenue = US$5.857 billion
- Lower Gross Margin of 20%,
- Gross Profit of US$1.171 billion
- Increase in expenses, operating income est. US$121 million
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Ma. Claribelle Deveza holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.
About the Author
Ma. Claribelle Deveza
Longtime writer and news/book editor. Writing about Tesla allows me to contribute something good to the world, while doing something I love.