/GettyImages-597435890-9732e29441ce4a46b48e47b367bc4d89.jpg "What to look for in TSLA")
Important takeaways
- Analysts estimate the adjusted EPS of $ 1.15 versus $ 0.41 in Q4 2019.
- Vehicle deliveries led to solid growth.
- Vehicle sales continue to expand despite the weak economy due to COVID-19 pandemic.
Tesla Inc. (TSLA), the maker of electric cars, is making a breakthrough in which it posted a fifth consecutive quarter of profitability for the first time, joining the S&P 500 and becoming the most valuable carmaker as its share price rose . It also made CEO Elon Musk the richest man on the planet. But despite the success, Tesla’s global market share remains small, its sales are small compared to the largest carmakers, and skeptics believe that Tesla’s inventory is drastically too expensive. Its price-to-earnings ratio is a high earnings of 1,616 times.
Given the high valuation, investors will be looking for strong financial results when Tesla reports earnings on January 27, 2021 for the fourth quarter of 2020. Analysts expect a significant increase in adjusted earnings per share (EPS) due to strong revenue growth compared to the previous quarter.
Another important benchmark for investors is the delivery of Tesla, the results of which were announced for the fourth quarter earlier this month. The number of vehicles delivered by the electric car manufacturer during the fourth quarter increased dramatically compared to the same quarter a year ago.
Shares in Tesla soared in 2020. The excellent performance of the stock over the past year was briefly interrupted by the pandemic-induced market crash between late February and late March 2020 and a significant pullback between late August and early September. But that has not stopped Tesla’s shares from delivering a total return of 672.1% over the past 12 months, well above the S&P 500’s total return of 16.0%.
Source: TradingView.
The driver of the stock was that Tesla was successful in making more steady profits after years of volatile earnings. Adjusted profit increased by 105.2% in the third quarter of 2020, which was the fifth consecutive quarter of profitability. Revenue increased by 39.2%, the sharpest increase since the second quarter of 2019. Tesla noted that revenue growth was primarily driven by significant increases in vehicle deliveries as well as growth in other parts of its business.
Results for Q2 FY 2020 were mixed. Revenue fell by 4.9%, which is only the second quarter of declining revenue in at least 15 quarters. However, Tesla showed positive adjusted earnings compared to an adjusted loss per share in the quarter last year. To be sure, Tesla’s positive earnings were not fueled by strong operating results. Instead, they got a boost by selling regulatory credits without emission to other car manufacturers, who need the credits to avoid fines. Analysts had expected Tesla to deliver a loss in Q2 2020.
The second quarter was also the fourth consecutive quarter of positive GAAP earnings for Tesla, which qualified the company’s inventory for inclusion in the S&P 500. Originally transferred for inclusion in September, Tesla was finally added to the broad market index in December.
Analysts expect Tesla’s profitability to continue in the fourth quarter of 2020. Adjusted profit is expected to increase by 178.8% and revenue is expected to grow by 44.5% compared to the same period of three months a year ago. For the full year 2020, analysts expect the adjusted EPS to increase by 6,330.8% as annual revenue increases by 28.3%.
| Tesla Key Stats | |||
|---|---|---|---|
| Q4 2020 (FY) | Q4 2019 (FY) | Q4 2018 (FY) | |
| Adjusted earnings per share ($) | 1.15 (estimate) | 0.41 | 0.39 |
| Income ($ B) | 10.7 (estimate) | 7.4 | 7.2 |
| Vehicle deliveries (K) | 180.6 (actual) | 110.7 | 89.5 |
Source: Visible Alpha; Tesla.
As mentioned above, investors are also interested in Tesla’s vehicle deliveries. Tesla’s main business is the production of electric motors and it must continue to expand production to grow revenue and profits. The electric car manufacturer has made a number of major acquisitions over the past few years, including German-based Grohmann Engineering GmbH and Perbix Machine Co. Inc., to increase its manufacturing efficiency and capacity. Increasing productive efficiency and capacity is important to justify Tesla’s high valuation. And while it may currently lead the electric vehicle market, other automakers are moving aggressively to challenge Tesla’s dominance.
So far, Tesla has been able to continuously expand vehicle deliveries, excluding Q2 FY 2020, when deliveries fell by 4.3% amid the pandemic. Vehicle deliveries for Q4 FY 2020, already reported, increased by 63.1% year-on-year (YOY) to a 44.1% YOY increase in Q3 FY 2020. The increase in the fourth quarter was the fastest growth since Q2 FY 2019. For the full year FY 2020, Tesla delivered a total of 499,550 vehicles at an annual rate of 35.9%. While the pace of growth for most companies would be impressive, it could be a warning sign for Tesla and its investors. The growth rate in 2020 was the slowest for the annual delivery of vehicles since the 2017 financial year, and the second slowest growth in six years.