Tesla Inc. delivered a second straight quarter of blowout earnings and speedy execution, extending an unprecedented surge for its heavily shorted stock.
The record revenue Tesla reported Wednesday beat estimates and carried the company to its fourth profit in the last six quarters. Chief Executive Officer Elon Musk again accelerated the introduction of the new Model Y crossover, saying deliveries will start by March, months earlier than initially planned.
Tesla soared about 10% in pre-market trading Thursday in New York. The shares, which reclaimed the title of most bet-against American stock earlier this month, had already more than doubled since Musk reported a surprise profit in October and divulged that the opening of a new plant in China was imminent.
“The short story is eroding,” said Gene Munster, managing partner of the venture capital firm Loup Ventures. He credited Musk for becoming a “quiet assassin” and sees Tesla having a clearer path to profitability.
Musk has turned a corner from years of over-promising and under-delivering, vaulting Tesla past Volkswagen AG to become the second-most valuable automaker in the world, behind only Toyota Motor Corp. Investors have rewarded him for building a commanding lead over manufacturers that have been slow to embrace an electric future and abandon the more than century-old internal-combustion engine.
The 48-year-old billionaire has thus far disproved predictions that Tesla will struggle to compete with the impending arrival of electric vehicles from established automakers. The Model 3 was the only EV consumers bought in significant volumes last year in the U.S., and in Europe it was the third-best seller among all models in December.
The Model Y, which Musk predicts will outsell all other Teslas combined, was initially scheduled to launch this fall. The company has moved up that date in each of its last two quarterly reports.
“The Model Y timing is going to send the bulls falling off their chairs,” said Dan Ives, an analyst at Wedbush Securities who rates Tesla the equivalent of a hold. “This is a game-changing inflection quarter because of the guidance on delivery and profit.”
Free cash flow exceeded $1 billion for the first time, bolstering Musk’s view that Tesla can sustain itself after years of making frequent return trips to Wall Street. He and Chief Financial Officer Zach Kirkhorn said they don’t plan to raise capital and will continue paying down debt over time.
The company projected it will deliver at least 500,000 vehicles this year, a more than 35% jump from 2019.
“What really matters is the outlook,” said Joe Osha, a JMP Securities analyst with the equivalent of a hold rating. “The stock is moving up because the unit outlook for 2020 is higher than consensus.”
What Bloomberg Intelligence Says
Strong 4Q cash flow leaves Tesla with record levels of cash and tangible signs of improved operating performance, supporting our favorable valuation views, despite strong returns in 2020. We think it’s possible raters may act on their positive outlook.
— Joel Levington, BI credit analyst
Still, the expectations baked into its stock price are lofty. For Tesla to justify its current market value over the long haul, earnings would have to soar 86-fold over the next 10 years, according to Bloomberg Opinion’s Liam Denning. By comparison, per-share profit at Apple Inc. jumped about 26-fold between 2006 and 2016.
There are other challenges as well. Musk has significantly curtailed capital expenditures the last two years, and skeptics continue to question how the company will be able to deliver on his promises without spending significantly more on future products and a new plant planned for near Berlin.
Chief Financial Officer Zach Kirkhorn declined to discuss Tesla’s budget for 2020 during an earnings call. The company spent just $1.3 billion last year after initially forecasting as much as $2.5 billion.
Tesla also is expecting at least a week-long delay ramping up Model 3 output at its factory near Shanghai as a result of China’s coronavirus, according to Kirkhorn. He said it’s still unclear how much of an impact the spread of the disease will have.
“At the end of it all, there’s a big sentiment shift,” said Ben Kallo, a Baird analyst with the equivalent of a hold rating on Tesla’s stock. “Eighteen months ago, this was a company going out of business, everyone said. Now, it’s a business people want to invest in. Institutional growth investors are starting to look at it as a real company that can make money.”
— Dana Hull and Ed Ludlow (Bloomberg)