What Happened

Tesla reported earnings on Jan 29. and reported a diluted EPS of $0.58, well under consensus expectations. However, when $1.56 a share in non-cash expenses from stock-based compensation is removed, TSLA reported an adjusted EPS of $2.14, much higher than expected. Investors paid attention to the adjusted number, sending TSLA's stock up 5% in after-hours trading. These earnings came after Tesla's record quarterly car-deliveries, announced earlier this month, which likely contributed to bullish sentiment.

(Below is Investopedia's original earnings preview published on Jan. 27, 2020)

What to Look for

Electric vehicle maker Tesla Inc. (TSLA) is scheduled to report Q4 2019 earnings after the markets close on Jan. 23. The company has produced innovative ideas, but what investors should remain focused on is the number of cars delivered. Following disappointing stock performance during Q2 and Q3, in Q4 2019 Tesla rocketed to total gains of 90.2% over the course of the trailing 12 months. This far outpaces the S&P 500, which has climbed by 23.7% over the same period.

One Year Total Return for S&P 500 and Tesla
Source: TradingView.

In both 2017 and 2018, Tesla reported its highest quarterly revenue in Q4. While year-over-year (YOY) Q4 revenue has grown regularly since 2016, it hasn't done so at a consistent rate. Notably, it grew particularly fast from Q4 2017 to Q4 2018, rising by nearly 120%. Based on consensus estimates of $7.1 billion in revenue for Q4 2019, Tesla's revenue will have reversed course and fallen slightly. Q3 2019 brought the first YOY quarterly revenue decline since 2016, and Q4 may see another.

Diluted earnings per share (EPS) has been almost the inverse, with YOY declines in quarterly EPS in the majority of quarters for the last three years. Following a significant dip to quarterly losses of $4.01 per share in Q4 2017, Tesla rebounded with a 119.5% improvement to EPS in Q4 2018. Analysts predict EPS of $0.99 for Q4 2019, which would mark a more modest YOY increase of 27.4%.

Tesla Key Metrics
  Q4 2019 Estimate Q4 2018 Q4 2017
Earnings Per Share $0.99 $0.78 -$4.01
Revenue (billions) $7.1 $7.2 $3.3
Vehicles Delivered 112,000 86,555 29,870

Source: Visible Alpha

For Tesla, vehicles delivered is a critical metric because vehicle deliveries represent the most concrete measure of whether Tesla can make good on its extravagant promises of growth. Tesla has faced recurring struggles with profitability, so in order to maintain its high stock price, it needs to deliver growth. The good news for Tesla is that demand for its products remains strong, even in spite of historic production bottlenecks that have occasionally hampered car delivery numbers.

Today, many of those production problems appear to have been resolved, but distribution still has a long way to go. Tesla has already reported vehicle deliveries for Q4 2019 earlier this month; the company delivered approximately 112,000 vehicles during the most recent quarter, with total 2019 delivery figures about 50% higher than in 2018. Q4 2019 saw 29.4% more vehicles delivered over Q4 2018. However, this pales compared with 189.8% growth in the number of vehicles delivered from Q4 2017 to Q4 2018. Tesla will need to continue to post strong delivery figures going forward if it is to become consistently profitable.