A simple name change masks a much more complex reality for Tesla Inc.

Elon Musk’s company, which earlier this month dropped “Motors” from its name, will release its first earnings report Wednesday as an integrated auto and clean-energy company. The results come after Tesla closed its $2.1 billion acquisition of SolarCity in November, combining Mr. Musk’s electric-car and solar-energy companies.

If an earnings report ever was a black box, this might be it. Tesla has released few details on how it plans to integrate SolarCity into the results. And Wall Street analysts’ projections are all over the place. Yet with the stock surging more than 50% since December and again flirting with records, few investors seem to care.

Under generally accepted accounting principles, analysts surveyed by FactSet estimate Tesla lost 97 cents a share in the fourth quarter, compared with a per-share loss of $2.44 in the year-earlier period. Estimates vary widely, from a loss of $2.13 to a loss of 30 cents a share. As recently as September, the consensus was for Tesla to be profitable in the final three months of 2016.

Tesla has only reported a quarterly profit twice on a GAAP basis since going public in 2010. Its profits have fallen short of analysts’ expectations for 12 quarters in a row.

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Judging by Tesla’s share price, investors are more focused on the future and the hype surrounding the Model 3. The mass-market sedan is expected to broaden Tesla’s reach beyond SUVs and luxury vehicles. But expectations are lofty. And Tesla doesn’t exactly have a pristine track record of meeting its own targets.


Last month Tesla announced it delivered 22,000 cars in the fourth quarter, bringing the year’s total to 76,230. That fell short of its guidance of 80,000 deliveries, thanks to what it called “short-term production challenges.” Tesla missed its quarterly deliveries guidance three times last year. Even so, it maintains that it wants to build 500,000 vehicles annually by 2018 and 1 million by 2020.

Yet SolarCity’s ability to burn through cash shouldn’t be ignored. Tesla has already been spending heavily on Model 3 production and its giant battery factory.

Through the third quarter, Tesla had reported 10 consecutive quarters of negative free cash flow, defined as operating cash flow minus capital spending. Its free cash flow turned positive in the third quarter, although that was probably due to a sharp increase in accounts payable.

Analysts now expect Tesla will burn through more cash at least through the middle of this year, in part because of losses at SolarCity. “It is increasingly important that Tesla shows SolarCity will not be a free cash flow drain,” RBC Capital Markets analysts wrote to clients.


Tesla already was a risky bet thanks to its rich valuation and execution issues. UBS said it sees “no fundamental reason” behind the stock’s rally.

With SolarCity now in the mix, investors are even more susceptible to getting burned.