Tesla (TSLA) is set to report earnings in February, but a huge lag in vehicle deliveries may cause a shortfall in the upcoming report. Tesla has long been a company that has traded based on vehicle deliveries. The stock has reacted to whether or not the right amount of cars had been delivered on time to customers. In a way this makes some sense, because the more vehicles that are ultimately delivered to customers the better the profit that is earned for the quarter. Well, that is exactly why this upcoming earnings report might not be so hot. Tesla delivery vehicles coming in under estimates could spell disaster for its Q4 earnings.

Delivery Vehicle Miss

Tesla announced that it had delivered a total of 22,000 of its electric vehicles in the fourth quarter of 2016. While quite a large number, it comes nowhere near its own estimate of 25,000 vehicles expected to be delivered by the end of the quarter. The problem with Tesla just doesn’t lie with the miss for the fourth quarter. It had even gone as far as missing its yearly delivery goal as well. The company hoped it wouldbe able to deliver between 80,000 to 90,000 vehicles before the end of the year. The problem is that it fell below this goal, and that’s what may cause an earnings problem going forward. The problem is that Tesla ran into many problems that caused a whole lot of setbacks. Such setbacks were responsible for production falling behind schedule. For example, the Model X SUV ran into production glitches that caused a whole backup of the assembly line. That is because these vehicles have rear doors that open upwards like a falcon type style. Secondly, Tesla had a problem of keeping its schedule on track with everything else it had going on. This included other projects like building the gigafactory and focusing on other items. What really drove the schedule back was Tesla implementing new technology into its electric vehicles. One such technology is the new autopilot system in Tesla vehicles. The delivery schedule miss along with a buildup of inventory will not be good for the upcoming earnings.

Autopilot System Boost

The new autopilot system being implemented in Tesla vehicles is a big reason for the delay in vehicle shipments. Even though the implementation didn’t start happening until October it was still a huge determent for the amount of vehicles delivered for the quarter. The autopilot system will feature a radar, forward-facing cameras and other automatic features. Elon Musk announced as early as October that vehicles currently in production would be equipped with the new autopilot system. In addition, if regulatory approval is granted would allow full function of the autonomy feature as early as the end of 2017. It is still too early to tell if this additional function will improve sales for Tesla. That is because customers have to pay an additional $5,000 to add the autopilot system into the vehicle. This may be a feature that not every customer wants.

Stock Movement

The TSLA stock has been in an upswing lately gaining at least 8% year-to-date. The key thing that traders must understand is that the Q4 delivery miss in vehicles may not be good for the upcoming earnings. If the earnings miss the stock could immediately erase its 8% yearly gain, and might even lose more. The good news is that even though the deliveries number missed, there has been a slight pickup in orders. Traders must watch for the next set of vehicle deliveries to determine if Tesla is meeting its goals. Only then can it be safe to stay in the stock. Until then, playing the next earnings report is a huge gamble. This is especially true considering that the forecasted delivery numbers were not met. It is best for those traders that are bearish to hedge themselves going into the Q4 earnings report. This is because Tesla did end up surprising analysts in the third-quarter of 2016 with a profit. At this point it is a huge toss up, and that’s why it is important to be hedged.