Cash Burn, Model 3 Remain In Focus For Tesla's Q1

Apple Inc. (NASDAQ: AAPL) isn't the only notable tech giant scheduled to report quarterly results this week. Tesla Inc (NASDAQ: TSLA) is scheduled to report Wednesday, and expectations for the electric auto maker and energy storage company are just as high as those for the iPhone maker.

UBS's Colin Langan, one of the Street's more notable Tesla bears, maintains a Sell rating and $160 price target on Tesla's stock ahead of the earnings report. The analyst's continued cautious stance stems from the company's history of delays in launching new products; investors are expected to "react strongly" to any Model 3 timing updates.

Few Encouraging Developments

Langan is also expecting investors to focus on Tesla's ongoing cash burn, which he estimates will accelerate from negative $800 million in the fourth quarter to negative $1.2 billion in the first quarter.

Accordingly, the analyst is modeling Tesla's earnings per share to drop $0.21 quarter-over-quarter to negative $0.90 per share in Wednesday's report. This estimate assumes a full quarter of solar inclusion from the SolarCity acquisition, negative pricing and higher operating expenditures ahead of the Model 3 production launch. These factors are only partially offset by improvements in volume and deferred Autopilot revenue.

Bottom line, Langan believes Tesla's current valuation implies it will:

• Sell 2 million auto units in just 10 years, or equal to BMW's sales figures today and just shy of Mercedes Benz's sales of 2.4 million units.
• Achieve a mid-teens operating margin target versus a 7-percent average for the auto sector.
• Achieve just a 3-percent annual dilution in the stock, a difficult task given Tesla's "significant" capital needs.
• Maintain a multiple of 25x earnings in 10 years.
• Expand Tesla's dealership and charging network.
• Remain relevant and compelling to consumers as major luxury car markets are entering the electric vehicle market in the 2018 to 2020 period.

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Heading Into Tesla's Q1, Model 3 Presents More Questions Than Answers
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Image Credit: By Steve Jurvetson - →This file has been extracted from another file: Candy Red Tesla Model 3.jpg, CC BY 2.0, via Wikimedia Commons