ii view: Tesla profits supercharged in Q3

Investors continue to kick the tyres of this electric vehicle maker. Here’s why. 

Third-quarter results

• Revenue up 39 year-over-year to $8.77 billion
• Net income up 131% to $331 million
• Earnings per share up 105% to 76 cents
• Cash and cash equivalents up 172% to $14.5 billion

ii round-up:

Electric vehicle giant Tesla (NASDAQ:TSLA) reported its fifth consecutive quarterly profit as both sales and earnings beat Wall Street estimates. 

Record revenue of $8.77 billion surpassed forecasts of just under $8.5 billion, while earnings per share of 76 cents accelerated past expectations nearer to 55 cents.

Tesla shares rose by over 2% in after-hours US trading having already gained by more than 400% year-to-date. Shares for US rival Ford (NYSE:F) are down 15% in 2020 while shares for European giant Volkswagen (XETRA:VOW) are down over 20%. Tesla’s stock market value now far exceeds any of its more traditional car manufacturing rivals despite lower current revenues and profits. 

Tesla made 145,000 vehicles in the quarter, an increase of 51% compared to the same quarter last year, while deliveries hit a new record of just over 139,000. The average vehicle selling price declined slightly year-over-year as the product mix continued to shift towards the more affordable and newer Model 3 and Model Y, and away from the Model S and Model X.

Vehicle deliveries, the nearest number to sales offered by Tesla, are forecast by the company itself to rise between 30% to 40% compared to 2019, leaving the annual total potentially at over half a million. Earlier in the year it suffered Covid-19 induced production disruption. Global deliveries in 2019 reached just over 367,000 vehicles. 

It continues to increase production capacity at both its US Fremont and Shanghai China plants and is currently constructing a plant in Berlin, Germany. Manufacturing is expected to begin there in 2021. Its Shanghai plant was built in 10 months. 

ii view:

Founded in 2003, Tesla designs, develops, makes, and sells fully electric vehicles and energy storage systems. It operates through the two divisions of Automotive, and energy generation and storage. In 2019, automotive accounted for nearly 94% of overall revenues. The US is its biggest revenue generator at just over half the group’s 2019 total. China accounted for around 12% last year, the Netherlands and Norway each around 5%. 

For investors, an estimated price/earnings ratio of over 200 compared to Volkswagen and General Motors (NYSE:GM) at under 20 times clearly highlights the forward projections of growth the current share price is attempting to account for. Will Tesla sales rise sharply, or can a growing array of pending electric vehicle launches from rivals’ dent Tesla growth? 

Possible Tesla deliveries this year of 500,000 are estimated by analysts to reach over 720,000 next year, or more if post results comments from its CEO Elon Musk are to be believed. Tesla has stolen a lead on its industry rivals, with its products continuing to excite consumers and edging lower in price. Any quarterly slip ups are likely to be harshly punished, but momentum remains with Tesla, and high-risk investors are likely to continue enjoying the ride. 

Positives: 

• Ongoing quarterly profit
• Climate change concerns are growing globally

Negatives:

• Competition from other manufacturers is increasing
• No current dividend payment

The average rating of stock market analysts:

Hold