After another knockout earnings report Wednesday, Tesla Motors stock is surging after-hours, but is it too late for investors to buy it?
There are few companies more divisive than Tesla (NASDAQ: TSLA), and although the earnings season is already well and truly underway, a lot of analysts were waiting for this big one.
True to form, Elon Musk’s electric vehicle (EV) leader didn’t disappoint.
Tesla Q3 earnings report highlights
Let’s get the main numbers out of the way first:
|Company Q3 Performance||Analysts’ Expectations||2020 Forecast|
|Revenue: $8.77 billion||Revenue: $8.36 billion||Revenue: N/A|
|EPS: $0.76||EPS: $0.57||EPS: N/A|
|Vehicle deliveries: 139,300||Vehicle deliveries: 137,000||Vehicle deliveries: 500,000|
Behind these numbers, Tesla’s total revenue for Q3 grew 39% year-over-year (YoY) thanks to substantial vehicle delivery growth, which helped operating income improve to a record of $809 million, while its operating margin improved to 9.2%.
Another key metric spotted by investors in Tesla’s extensive earnings deck was that cash and cash equivalents increased by $5.9 billion to $14.5 billion quarter-over-quarter (QoQ). The majority of this came from the $5 billion sale of common stock in September through an at-the-market offering.
Net income (GAAP) came in at $331 million versus $394 million expected, courtesy of the company’s heightened operating expenses in Q3. Tesla’s expenses jumped 33% to $1.25 billion due to the building of new factories in Germany and Texas.
Finally, what you’ve all been waiting for:
When asked about the Cybertruck, Elon Musk said he expects some deliveries of the cyberpunk-esque, trapezoidal truck to begin by the end of 2021 “if things go well.”
What about those credits?
We were hoping nobody would ask about those pesky regulatory credits again.
In case you didn’t know: Regulatory Credits are points given by the state and federal government for contributing zero pollution to the environment. As Tesla is a zero-emissions car producer, it can sell these credits to other manufacturers who must then use them to comply with meeting federal emission targets themselves.
Let’s address the elephant in the room: this is the fourth consecutive quarter that Tesla would not have been profitable without regulatory credit sales. Tesla raked in $397 million in regulatory credits during Q3, nearly doubling the amount it made from these “green” credits year-over-year.
So, what’s the problem you ask?
Some critics argue that Tesla is not actually making a sustainable profit as it is not clear how long its credits will be such a hot ticket. Already in the first nine months of this year, Tesla’s regulatory credits have totaled $1.18 billion, compared with $594 million for the full year of 2019. However, the development of rival electric cars could soon mean fewer customers for Tesla, as large automakers and startups start collecting their own credits. Just this week, General Motors unveiled its latest EV venture: a reimagining of the Hummer.
What happens when the credits buyers stop needing to buy? Tesla CEO Elon Musk has been adamantly against raising car prices — just last week he reduced the Model S twice to a juvenile $69,420. Credit sales can’t keep Tesla going forever, and cutting prices to suit a — let’s be honest — outdated joke is not a clever business model.
Don’t be discouraged yet though, there’s plenty to be bullish about for Tesla.
So, is it too late to invest?
Despite a relatively flat few weeks following September’s pull-back, Tesla shares have soared an outrageous 404% this year, for a valuation close to $400 billion, so it’s natural for any investor to worry about being too late. Tesla stock is definitely overpriced right now, with its price-to-sales ratio at roughly 15.63, compared to industry leaders such as Ford and GM who boast P/S ratios of 0.28 and 0.44 respectively.
However, for the true believers, the sky’s the limit for Tesla which has gone from strength to strength, while Elon Musk predicts the company can build 20 million vehicles per year over the next decade. He’s backing this up too with new factories worldwide. As well as this, Tesla is the current leader in automotive car manufacturing and, surprisingly, consumer driving habits data collection, all of which could be worth massive amounts in the years to come.
If you believe in Tesla and aren’t afraid of a little risk, then it’s never too late to invest, but you should be prepared for some volatility with this company which is still in a growth stage.
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