The Street Is Overlooking This Ahead Of Tesla's Q3 Release

Ahead of Tesla Motors Inc TSLA's third-quarter results, Baird said the Street estimates may not have been updated for the change in reported revenue. Accordingly, the firm sees headline risks for Tesla.

Analyst Ben Kallo said he is updating his revenue model to reflect GAAP revenue despite the complexity involved, given the changes to revenue recognition and incorporation of lease accounting. The analyst noted that the company will phase out non-GAAP revenue and adjust non-GAAP earnings per share to add back stock-based compensation.

For the third quarter, Baird expects revenues of $1.985 billion and non-GAAP earnings per share of $0.72. The firm estimates Tesla leased about 35 percent of deliveries during the quarter.

Baird now expects 2016 revenues of $6.48 billion and non-GAAP loss per share of $3.98. For 2017, the firm forecasts revenues of $10.4 billion and non-GAAP earnings per share of $0.80. Despite modeling an increase in operating expenditure to $2.76 billion in 2017 from $2.08 billion in 2016, Baird said the metric depends on how fast Tesla grows and spends on R&D.

Baird expects the company's cash flow to ramp up as it increases deliveries. However, the firm believes the company will continue to invest in the design of new products and build-out of increased manufacturing capabilities.

Possible Tailwinds

• Ramp of Model X production.
• Additional details about the Model III.
• Expansion of production capacity for both Tesla auto and energy.
• Construction milestones at Tesla's cell/battery factory.

On the earnings call, Baird expects positive commentary about production, the construction and ramp of the Gigafactory and overall demand.

As such, Baird has an Outperform rating and a $338 price target for the shares of the company.