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Tesla brings forward earnings report

Wall Street expects it to turn a profit; stocks surge 13 per cent on Tuesday on speculation that CEO Elon Musk is in a hurry to share good news


AFTER months of production "hell," then a period of mayhem involving Elon Musk, Tesla Inc may finally be entering a new era - one in which it makes money.

The electric-car maker is approaching its earnings report on Wednesday with much of Wall Street suddenly gushing with enthusiasm about its prospects.

Mr Musk, who has said that he is comfortable predicting that Tesla will post profit and positive cash flow every quarter going forward, excited investors by hastily scheduling the release of results earlier than expected and with just two days' notice.

Tesla surged 13 per cent on Tuesday, on speculation that Mr Musk was in a hurry to share good news. The stock also got a bump from Citron Research's Andrew Left - a vocal, long-term critic who had been shorting the shares - announcing that he had changed his view.

He is now long on the company, saying that it is hitting stride with Model 3 production and snagging customers from the likes of Mercedes and BMW.

"When he says they're going to be cash-flow positive, possibly this quarter, I'm not going to doubt it," Mr Left said of Mr Musk on Tuesday in a Bloomberg Television interview.

When Mr Musk was busy making "a sideshow of himself" in recent months, Mr Left said that he and others overlooked an underlying business that has turned a corner.

The Tesla chief executive officer failed in his short-lived bid to take the company private, and agreed in a settlement with the Securities and Exchange Commission (SEC) to relinquish the role of chairman.

Tesla delivered 83,500 vehicles in the third quarter - many of them higher-priced models - and scores of existing Tesla owners volunteered at delivery centres in the final weekend.

In an e-mail to employees on Sept 30, Mr Musk said that the company was "very close to achieving profitability and proving the naysayers wrong".

Some bears are now conceding that this rare feat for Tesla may indeed have been achieved.

"We fully expect that Tesla has found a way to show a profit for the third quarter and would be very surprised if they don't, given the hoops they jumped through to do so," David Kudla, chief investment strategist for Mainstay Capital Management, who has bet against the company, said in a note on Tuesday.

"Tesla must go back to the capital markets for money, but maybe they want to get a profitable quarter on the books first."

If Tesla turns a profit, it will be only its third on a quarterly basis since 2013.

One factor that could help the company get over the hump this quarter is the sale of the zero-emission vehicle (ZEV) credits to other carmakers, which need them to meet mandates in states led by California.

ZEV-credit sales can be lumpy - Tesla reported US$50 million of them in the first quarter, but none in the second quarter. Analysts are on the lookout for whether the company pulled this lever to boost revenue.

Tesla takes refundable deposits from customers before their cars - or solar roofs - are in production. At the end of June, deposits stood at US$942.1 million. With more Model 3 sedans now being delivered, it is not clear how many reservations have been converted to actual sales, and how much more pent-up demand is still left for the company to work through.

Last quarter, Tesla gave a forecast for how many Model 3s it would produce in the next three months and said that deliveries would exceed that total. The company has not yet said whether it achieved a goal to make 6,000 of the sedans a week by late August, and has been vague about when it will get to a 10,000-a-week rate. Mr Musk has walked back previous plans to get there by sometime this year.

As part of his and Tesla's settlement agreements with the SEC related to his go-private tweets, he must step down as chairman by mid-November, and the company must appoint two new independent directors to the board by late December. So far, Tesla has been mum on the status of the search process.

And here is a round-up of analyst commentary ahead of the results:

  • Barclays, Brian Johnson: It is estimated that Tesla may have boosted its cash balance by about US$800 million in the quarter, bringing the company's balance to roughly US$3.5 billion. Sharp increase in production and deliveries "sets up a bear trap". Underweight rating.
  • Morgan Stanley, Adam Jonas: Tesla's surprise early scheduling of third-quarter earnings is more likely a positive sign than an adverse sign. The pull-forward coincides with an inflection of Model 3 deliveries and could be a catalyst for a positive fourth-quarter guide. Timing of release could align with potential financing plans. BLOOMBERG


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