Tesla Expected to Report Profit for Quarter as Attention Focuses on China -- Update

By Tim Higgins

Tesla Inc. is expected to release fourth-quarter financial results after the market closes Wednesday. Tesla delivered 367,500 vehicles in 2019, a 50% rise from 2018. That met Chief Executive Elon Musk's goal of delivering between 360,000 and 400,000 vehicles globally last year. The results have helped fuel Tesla's meteoric share price rise, putting the company's market value at a level greater than most of the world's largest auto makers despite selling a fraction of the vehicles and never turning an annual profit. Here's what you need to know:

EARNINGS FORECAST: Tesla is expected to post an adjusted profit of $1.77 a share in the quarter, according to analysts surveyed by FactSet, compared with an adjusted profit of $1.93 a share a year earlier. The full-year adjusted-per-share loss is expected to come in at 44 cents, as of Wednesday afternoon.

REVENUE FORECAST: Revenue is expected to fall to $6.99 billion in the quarter, according to FactSet, from $7.23 billion a year earlier. Tesla said earlier this month that total vehicle deliveries reached a record 112,000 during the period, up sharply from early 2019 when sales disappointed and investors questioned whether demand for the electric car company's vehicles had peaked. The expected fourth-quarter revenue drop highlights a challenge for Tesla as it focuses on delivering its new Model 3 compact car, which on average sold for an estimated $47,700 last quarter. The older Model S large sedan and Model X sport-utility vehicle, which traditionally sold for around $100,000, have seen softer demand. Combined deliveries of the most expensive models fell to a combined 19,450 vehicles in the fourth quarter, down from 27,550 a year earlier.

WHAT TO WATCH

THE ROAD AHEAD: Wall Street will be looking for the company to forecast its expected sales growth for the year. Analysts on average predict deliveries will rise 27% to 468,000 this year. Morgan Stanley analyst Adam Jonas expects the company to set a target of 500,000 to 550,000. Cost improvements and increased production from Tesla's China factory could drive the car maker's first full-year profit, Mr. Jonas said in a note. Analysts on average are predicting that Tesla will report a full-year profit of $6.78 a share for 2020.

CHINA: Mr. Musk earlier this month celebrated the opening of the company's Shanghai assembly factory, its first outside the U.S. Tesla has already begun delivering China-made Model 3 cars to customers there. Investors will be looking for details on how efforts to increase production there are going, including sustaining the goal of making 3,000 vehicles in China a week. All that comes amid concerns that demand in China for new vehicles has been waning. The overall new vehicle market has fallen two years in a row in China and deliveries of electric vehicles struggled last year as the government pulled back on subsidies. Tesla needs to outperform the market. China remains "the key fuel in the growth engine" for Tesla, Daniel Ives, an analyst for Wedbush Securities, told investors. "2020 represents a pivotal year for Musk & Co."

CORONAVIRUS: Just as Tesla is looking to boost production in Shanghai, the company joins others in facing the uncertainty brought about by the spread of the coronavirus. Car companies are bracing for disruption with the epicenter of the virus affecting central China where the auto industry has a large footprint. Investors could be looking for details on Tesla's China supply chain and how it might be affected. Even without the threat of the coronavirus, Wall Street has been trying to better understand Tesla's plans for sourcing batteries for its China factory.

MODEL Y: In October, Tesla revealed that its plan to begin production of the Model Y, a compact sport-utility vehicle based on the same platform as the Model 3, were ahead of schedule. Production is expected to begin this summer. Investors will be looking for details on how that effort is going.

Write to Tim Higgins at Tim.Higgins@WSJ.com

(END) Dow Jones Newswires

January 29, 2020 13:08 ET (18:08 GMT)

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