This one number in Tesla’s earnings report Wednesday will make or break the stock, Citi says

Citigroup thinks Tesla investors hoping for a post-earnings rally later this week should scrutinize one key financial metric when it reports its quarterly results this Wednesday.

The electric car maker’s automotive gross margin specifically will likely determine how Tesla’s stock finishes the week and remains central to the company’s future financial health, analyst Itay Michaeli told clients in a note.

Gross margins in the range of 21% to 23% will serve as a decent benchmark for expectations as “anything materially lower would support the bear case on Tesla’s profitability, and anything materially higher would support the bull case,” the analyst wrote.

“Tesla has targeted gross margin improvements throughout this year, so we’ll be watching for progress there,” Michaeli continued. “We’ll also be watching Tesla’s opex & capex as measures of earnings quality,” as well as the company’s average selling price for vehicles, the analyst said.

Tesla will report second-quarter earnings after the bell on Wednesday and could offer stakeholders an update on its 2019 delivery target.

That number could be set for an upward revision after the company said earlier this month that it smashed prior production and delivery records during the quarter, easily topping analyst predictions. The company delivered 95,200 cars during the the three months ending June 30 — a 51.1% increase over the first quarter and ahead of its previous record of 90,700 deliveries set in the fourth quarter of 2018.

Wall Street analysts currently expect Tesla to deliver somewhere between 360,000 and 400,000 cars in 2019.

Michaeli, who recommends clients sell the stock, says Tesla remains a risky bet. Thirty-four percent of Tesla’s floating shares are sold short, according to FactSet data, indicating that a significant portion of investors believe the stock has more downside ahead.

“We think there’s still a fair amount of skepticism around Tesla achieving anything above the low-end of its delivery range,” Michaeli wrote. “A confident reiteration perhaps with supportive commentary on the pace of July deliveries would probably be received well, particularly if Tesla were to also confirm other prior-guidance metrics.”