Updates on China, margins in the spotlight

Tesla is expected to report its second quarter results Wednesday after the bell, and investors are eager to see how the measures taken by the CEO, Elon Musk, to streamline its business affect profitability.

According to estimates by badysts surveyed by Refinitiv, revenues for the quarter probably increased by 60% over the previous year, reaching $ 6.41 billion. The loss per share of the company probably decreased from $ 3.06 to 40 cents per share.

The gross margins of Tesla in the automotive sector will be a closely watched figure. The electric car manufacturer has limited production of its most expensive vehicles, models S and X, and has focused on moving a high volume of models 3.

Itay Michaeli, director of Citi Research, wrote in a note Monday that gross margins in the automotive industry, between 21% and 23%, would meet expectations, but that "any substantial decline would justify the decline in profitability Tesla , and any significant difference "higher would support the bull case." It has a stock quote on the stock and a price target of $ 191 in advance on earnings.

Tesla shares fell 22% this year, trading around $ 260 on Wednesday.

Michaeli also said he wanted to know how much regulatory credit sales contributed to Tesla's gross margins in the second quarter. Tesla has reached an agreement with Fiat Chrysler to sell regulatory credits worth hundreds of millions of euros to offset the carbon dioxide emissions of the Italian automaker's vehicles.

In their previous forecast, Tesla executives said the company would regain profitability in the third quarter and become positive free cash flow in the second half. They also said that Tesla was targeting gross margins of 25% for the auto sector (on a non-GAAP basis) and expects deliveries for the year 2019 to reach at least 360,000 vehicles.

Michaeli said it would be a good sign if Tesla can confirm this prior guidance.

"We believe that there is still a lot of skepticism with regard to Tesla, who is doing better than others." Did he declare. "Thus, a confident reiteration with perhaps favorable comments on the pace of July deliveries would probably be welcomed."

Beyond the balance sheet, Musk will likely be confronted with questions about Tesla factories in the United States and a new factory under construction in Shanghai.

Joseph Osha, an badyst at JMP Securities, wrote in a note on Tuesday that the increase in demand is not expected to be a problem for Tesla in the second half of 2019, but manufacturing constraints may again be a problem. big obstacle. Osha has a market outperformance rating and a target price of $ 347.

"We believe that it is possible for Tesla to free up space for an additional output of Model 3 in Fremont at the expense of the S / X output, and we expect that it will also be the same." 39 approach to support the initial output of Model Y ", wrote Osha. He also predicted that Tesla might be able to produce a few thousand cars in Shanghai by the end of the year, but could have trouble producing with a high production volume up to the end of the year. this plant is fully operational by 2020.

Here's how Musk addressed his main concerns at the June shareholders meeting:

"If I were an outside investor, I would really focus on two things: what is the schedule for complete self-driving.What is your plan for reducing battery production and reducing the cost per kilowatt hour? " He said Tesla would host a "Battery Day" and unveil its long-awaited "cyberpunk" truck this year.

Tesla said earlier this month it produced 87,048 vehicles and 95,200 vehicles in the second quarter, a record for the company and in line with its expectations.

Forecasts for production and shipments for the second quarter after a sluggish start to the year helped boost investor confidence. Although the shares are down for the year, they have increased by about 16% compared to July 2, day of the production of vehicles and their deliveries.

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