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What's In Store for Tesla ETFs in Q3 Earnings?

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The electric carmaker Tesla Motors (TSLA - Free Report) is scheduled to report third-quarter 2016 results on October 26 after market close. Though the stock had a tumultuous ride in recent months following its criticized $2.6 billion SolarCity deal and negative earnings revision activity, some good news might be in store for TSLA in the earnings report.

Good Tidings

This is especially true as Tesla reported the fastest vehicle sales growth for the third quarter since 2013 on October 2. The automaker delivered a record 24,500 vehicles (15,800 Model S and 8,700 Model X) during Q3, up 70% from Q2 and 111% from the year-ago quarter. It expects Q4 deliveries to be “at or slightly above Q3” and remains on track to deliver 50,000 vehicles in the second half of the year. Additionally, the company expects to increase its delivery from 80,000 cars this year to 500,000 cars by 2018 (read: Auto ETFs to Watch on Dismal September Sales).

Further, Tesla CEO Elon Musk said the third quarter will likely be the best ever in the company’s history. It also expects the company could achieve GAAP profitability for the first time in three years. In an email sent to Tesla employees in late August, Musk said “Right now, we are tracking to be a few percentage points negative on cash flow and GAAP profitability, but this is a small number, so I’m confident that we can rally hard and push the results into positive territory.” If this happens, it could please investors and push the Tesla share price up.

In this regard, Wall Street estimates Tesla to post Q3 earnings per share of a couple of cents.  

Earnings Whispers

Tesla has a Zacks Rank #4 (Sell) and an Earnings ESP of +0.00%. According to the our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP has chances of an earnings beat. A Zacks Rank #4 or 5 (Sell rated) are best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. (Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises)

This is what we have seen for Tesla Motors. The company saw negative earnings estimate revision from a loss of 14 cents to a loss of 64 cents for the third quarter over the past 90 days. The earnings track record is also bad for the company with negative average earnings surprise of 103.35% for the last four quarters.

However, the Q3 Zacks Consensus Estimate reflects substantial earnings growth of 36.6% and revenue growth of 80.30% from the year-ago quarter. This could be seen as a ray of hope that company might start showing growth (see: all the Alternative Energy ETFs here).
Two Events on Radar

Investors’ will be eagerly watching the updates on Model 3 launch and SolarCity acquisition. Though Tesla is on track for its production and delivery of Model 3 in late 2017, investors remain concerned about its proposed timeline given that the launch of Model X was delayed for nearly three years from the initial target.

This is because the proposed combination of SoalrCIty would result in too much of cash burning that could slow the production of Model X and might lead to a financial crunch. As such, the company's ability to successfully integrate SolarCity while ramping up Model 3 production next year has been questioned (read: Acquisition Talks Boost SolarCity;Hit Tesla: ETFs in Focus).

ETFs to Watch

Given this, ETFs having the highest allocation to this luxury carmaker will be in focus going into its earnings announcement. These funds are the potential movers if Tesla surprises the market and returns to positive GAAP earnings as expected.

VanEck Vectors Global Alternative Energy ETF (GEX - Free Report)

This ETF tracks the Ardour Global Index Extra Liquid, focusing on global companies that are primarily engaged in the business of alternative energy. The fund holds about 32 stocks in its basket with AUM of $83.2 million while charging 62 bps in fees per year. Average daily volume is paltry at about 4,000 shares. Tesla Motors occupies the top position in the basket with 10.3% allocation. In terms of country exposure, the fund is skewed toward the U.S. with 52.5% share while China and Denmark round off the top three spots with a nearly double-digit allocation each.

ARK Industrial Innovation ETF (ARKQ - Free Report)

This is an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvement and advancements in scientific research related to robotics, energy storage, innovative materials, alternative energy sources, infrastructure development, space exploration, autonomous vehicles and 3D printing. This approach results in a basket of 39 stocks, with TSLA occupying the second spot with 8% share. The product has accumulated $15.9 million in its asset base and charges 75 bps in fees per year. It sees a paltry volume of about 1,000 shares a day.

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report)

This fund follows the Nasdaq Clean Edge Green Energy Index and manages assets worth $51.5 million. It charges 60 bps in fees per year while trades in a light volume of around 10,000 shares per day. In total, the product holds 38 U.S. securities with Tesla Motors taking the third spot in the basket at 7.6%. Technology and industrial firms dominate this ETF, accounting for 29% and 27.6% of the assets, respectively, while oil & gas and utilities round off the next two spots with a double-digit allocation each (read: What Lies Ahead for Alternative Energy ETFs?).

ARK Innovation ETF (ARKK - Free Report)

Like ARKQ, this is also an actively managed fund and follows the same strategy but provides exposure to genomic companies, industrial innovation companies or Web x.0 companies. In total, the fund holds 46 securities in its basket with Tesla occupying the top position holding 7.4% share. The product has accumulated $12.3 million in its asset base and trades in a paltry volume of about 3,000 shares. Expense ratio comes in at 0.75%.

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