Reports Q3 2020 results on Wednesday, October 21, after the market closes
Revenue Expectation: $ 8.2 Billion
EPS expectation: $ 0.55
Looking at the Tesla (NASDAQ 🙂 stock price and the enthusiasm for future growth, it is clear that investors do not believe anything can go wrong with this electric vehicle manufacturer. That belief could be tested today when the company releases its third-quarter earnings report after the closing bell.
As we dive into earnings numbers, there are strong signs that Tesla & # 39; s CEO, Elon Musk, is in an enviable position to deliver on some of his promises. The company told investors earlier this month that vehicle deliveries hit a new record in the most recent quarter as demand remains strong even during the pandemic.
Tesla sold 139,300 vehicles in the September quarter, slightly more than the 137,000 deliveries analysts expected and 44% more than last year's figure. In the first nine months of 2020, Tesla delivered just over 318,000 vehicles, moving it closer to meeting its target of 500,000 vehicles by 2020, an increase of at least 36% from last year's total.
These positive developments have seen Tesla's stock rise more than 400% this year, making it the world's most valuable auto company with a market capitalization of $ 400 billion. Shares closed at $ 421.94 on Tuesday, down 2.06% on the day.
Tesla Weekly Chart
But the reality of investing in Tesla stock is that it can fall as fast as it can rise. In a correction that began in early September, Tesla lost more than 30% of its value in just one week. While the stock has since recovered some of its lost ground, it is still down 14% from its all-time high.
For these reasons, it is very important to Musk to keep Tesla profitable in order to demonstrate that he can consistently sell cars more than they cost. On average, analysts expect the company to post a 31% revenue increase to $ 8.26 billion. But earnings per share could drop to $ 0.55 from $ 1.86 in the same period a year ago.
Wedbush analyst Daniel Ives raised his price target before Tesla earnings from $ 475 to $ 500, saying he is in a good position to sell more cars:
"Tesla & # 39; s improved production efficiency and shining Giga 3 success in China will be on full display later this week, leading to another strong performance that we believe should beat the street."
To keep the momentum going, Musk recently outlined his future strategy at the company's Battery Day event, which included producing a cheaper battery, building a $ 25,000 electric car, and eventually manufacturing 20 million vehicles per year. However, these ambitious goals came without a precise timeline or budget.
Tesla's, however, did not come from the sale of more cars. Total sales were actually down 4% from a year earlier, but included $ 428 million in regulatory credit sales to help rival manufacturers meet emissions commitments. These credit sales are pure profit and represented more than 100% of the company's revenues. A year ago, Tesla posted $ 111 million in second-quarter credit sales.
Bottom Line
Despite investor optimism, we believe Tesla's recent performance has already been factored into stock valuations and stocks are significantly overvalued relative to fundamentals.
In the absence of emerging understanding of catalysts, we are cautious about demand given the recessionary environment and the accelerated rate of coronavirus infections. These conditions are likely to make it difficult for the company to meet its 500,000 car sales target for the year. After a breathtaking rally this year, we believe Tesla shares will continue to be subject to downward pressure, and it would be wise for investors to take some risk off the table and enjoy the profits.
