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Oct. 23, 2019, 2:07 p.m. EDT

Tesla is about to show investors if it’s back on the road to profitability

Q3 results are ‘fork-in-the-road moment’ for electric-car maker

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By Claudia Assis, MarketWatch

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“With Tesla young and trying to scale up, I’m always interested in their free cash flow or burn for a quarter,” said David Whiston, an analyst with Morningstar. “That’s the most important thing to me because it’s a measure of health and ultimately of its ability to service its debt.”

The shift to the Model 3 while Model S and Model X sales are declining, plus increased costs with a raft of planned new vehicles and investments in driverless-car technologies “always create the question of: ‘Is volume sufficient enough to make up for reinvesting in the business?’” Whiston said.

Whiston said he is “cautiously optimistic on another positive free cash flow quarter, especially with the 2019 (capital expediture) guidance cut” in the second quarter. Moreover, Tesla is “a long-term story,” and one quarter is unlikely to make or break the company, he said.

Tesla still enjoys “strong” demand for its vehicles, especially for the Model 3, and from people who did not put down deposits, said Bill Selesky, an analyst with Argus Research.

“That’s a good sign for me, telling me that things continue to get better on the demand side. They just need to get production issues corrected and focus on cost controls,” he said.

See also: Tesla’s ‘Smart Summon’ feature is glitchy and works intermittently: Consumer Reports

Another item high on investors’ agenda is an update on Tesla’s China plant and the Model 3 production ramp in that country; the expectation is that the plant will reach peak production sometime next year.

Tesla is also expected to provide more details on a timeline for the Model Y, the compact SUV it hopes to launch in fall 2020. Personnel news is also not outside the norm for Tesla; at its second-quarter-results conference call, Tesla announced the departure of its No. 2, Chief Technology Officer J.B. Straubel.

Related: Is Tesla’s executive turnover really high? This analyst sets out to find the answer

In any case, third-quarter results “could represent a fork-in-the-road moment for (Chief Executive Elon Musk) & Co.,” analysts at Wedbush, led by Dan Ives, said in a recent note.

Tesla, they wrote, “either successfully navigates this next step in its evolution and shows the profitability trajectory or otherwise stays on this treadmill of kicking the earnings can further down the road.”

Claudia Assis is a San Francisco-based reporter for MarketWatch. Follow her on Twitter @ClaudiaAssisMW.

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