Tesla‘s second-quarter profit will grow by more than $1 billion due to the amount of Model 3 electric cars that have been sold. But analysts predict it won’t be enough to stop the company’s net loss from rising dramatically when the Palo Alto, California, company reports earnings after the bell Wednesday.
Analysts polled by FactSet expect a net loss of $629.9 million, 87% worse than the same quarter a year ago. Revenue should rise 43% to $3.99 billion.
Investors will be paying attention to how much cash the company burned up from April through June, with many questions about whether Tesla can generate enough money to pay the debt, cover expenses and hold off returning to the capital markets for more cash.
However, some analysts predict a much more dramatic loss.
What do the analysts say about Tesla’s Model 3?
Colin Langan, a UBS analyst, predicts in a note to investors that Tesla used $900 million in cash last quarter, $200 million better than the first quarter but still a huge amount as the company tries to move from a niche manufacturer of cars for the wealthy to mass production.
CEO Elon Musk has predicted profits in the 3rd and 4th quarters as production and deliveries of the Model 3 increase. The car starts at $35,000, but the cheapest model now costs $49,000. There is a prediction to produce more than 6,000 Model 3 electric cars in August.
During the 2nd quarter, Tesla laid off 9% of its workforce as it worked toward Musk’s promise of making money. The company has never turned an annual profit and has had only two profitable quarters.
The number of vehicles that Tesla sold reached up to 200,000 in July since 2010, the point at which a $7,500 federal tax credit starts to phase out. Tesla buyers will get the credit through the end of the year. After that, it will reduce by half and eventually go away by the end of 2019.
Analysts who were asking questions about Model 3 reservations have been suspended last quarter. Moreover, other financial matters during the quarterly conference call have been terminated as well.
Langan gives the stock a “Sell” rating and has a 12-month share price target of $195. Shares at $298.14 closed on Tuesday, up from $252.48 since the start of April. Langan expects an adjusted loss of $3 per share for the quarter, worse than the Wall Street consensus of $2.88.