ii view: speeding Tesla overtakes Toyota

Resilience in the face of Covid-19 has raised hopes of a fourth consecutive quarterly profit.

Second-quarter update

ii round-up:

Electric vehicle maker Tesla (NASDAQ:TSLA) last week reported second-quarter deliveries of more than 90,000, beating analyst estimates and contrasting with rival auto makers suffering under pandemic disruption.

Analysts had expected an outcome of around 75,000, down from its first-quarter delivery total of 88,400 given the Covid-19 backdrop. 

Telsa shares rose by more than 7% following the update and are now up over 185% year-to-date. Rivals Volkswagen (XETRA:VOW) and Ford Motor (NYSE:F) have seen their share prices fall by 21% and 35% respectively during 2020. Ford second-quarter sales fell by a third.

Tesla recently overtook Japan’s Toyota to become the world’s most valuable automaker with a stock market value of over $200 billion. 

Tesla produced over 82,000 vehicles in the period, down from 103,000 in the first quarter. Its Fremont California factory was shut for nearly two months due to the pandemic. Its Shanghai China factory suffered brief Covid-19 closures during late January and early February.

The first quarter of 2020 marked the first time it had achieved profitability in the seasonally weak period. These above-forecast quarterly delivery and production figures have raised hopes for a profit at the coming second-quarter results – a potential fourth consecutive quarterly profit. 

Although no date has been confirmed, last year’s second-quarter numbers were announced on 24 July.    

ii view:

Founded in 2003, Tesla is today seen as a leader in electrically powered vehicles. The lack of fossil fuel emissions from its production vehicles is seen by many governments as necessary to reduce climate change.    

For investors, Tesla is now reshaping the automobile industry. Rivals such as Ford and Volkswagen are still arguably playing catch up. Broker Morgan Stanley believes the company is now being viewed and valued as a technology company rather than compared to rival automobile companies. Tesla’s estimated forward price earning (PE) ratio of over 200 is far closer to Amazon (NASDAQ:AMZN) at over 140 than Ford’s single-digit 10-year historical average.  

With electric vehicle penetration shy of 1% in the US and roughly 2% globally, there's clearly more to go for, but Morgan Stanley is in the camp of brokers concerned that Tesla's valuation has forged ahead of events. 

Positives: 

• Three consecutive quarters of profit
• Climate change concerns are arguably growing globally

Negatives:

• Competition from other manufacturers is increasing
• CEO Elon Musk has previously come to the attention of the SEC due to tweets

The average rating of stock market analysts:

Hold