Tesla had a great quarter…what happens next is anybody’s guess.
Author: Jesse Barke, Published: October 24, 2019 10:45pm Category: Earnings Review (After the 3Q2019 earnings release)
Tesla reported surprising adjusted earnings per share of $1.86, which far exceeded market expectations (negative profits) and my forecast of $0.05 ahead of the release.
This performance is in no small part attributable to a decrease in operating costs to the tune of $150 million (in contrast to my forecasted reduction of $93 million). The company also reported a significant drop in operating cash flow.
As previously reported, Tesla has confirmed the production of full vehicles on trial -pre-production- basis at the Gigafactory in Shanghai. Full commercial production should kick off by year-end with an expected output of 3,000 Model 3 cars per week.
The estimated production costs in China, 65% lower than in the US, coupled with China being an attractive market for model 3, could be a boon for Tesla though unresolved trade tensions with the U.S. still cast an ominous shadow.
Despite the generally positive Q3 results, there are areas of concern that warrant consideration. Total revenues ($6,303 M) are below my forecast of $6,481M, and the $6,824 M reported in 3Q2018. This is exacerbated by YOY declines in both auto sales gross margin and net income. Competition remains a real threat as auto producers are looking to expand their electrical vehicle offerings.
I remain cautiously optimistic about the company’s future performance and maintain a ‘Neutral’ rating. Tesla’s ability to deliver between 360,000 and 400,000 vehicles this year would provide us with more significant insights into the prospects of next year’s performance.
This performance is in no small part attributable to a decrease in operating costs to the tune of $150 million (in contrast to my forecasted reduction of $93 million). The company also reported a significant drop in operating cash flow.
As previously reported, Tesla has confirmed the production of full vehicles on trial -pre-production- basis at the Gigafactory in Shanghai. Full commercial production should kick off by year-end with an expected output of 3,000 Model 3 cars per week.
The estimated production costs in China, 65% lower than in the US, coupled with China being an attractive market for model 3, could be a boon for Tesla though unresolved trade tensions with the U.S. still cast an ominous shadow.
Despite the generally positive Q3 results, there are areas of concern that warrant consideration. Total revenues ($6,303 M) are below my forecast of $6,481M, and the $6,824 M reported in 3Q2018. This is exacerbated by YOY declines in both auto sales gross margin and net income. Competition remains a real threat as auto producers are looking to expand their electrical vehicle offerings.
I remain cautiously optimistic about the company’s future performance and maintain a ‘Neutral’ rating. Tesla’s ability to deliver between 360,000 and 400,000 vehicles this year would provide us with more significant insights into the prospects of next year’s performance.
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Disclosure: The author of this article/model has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in the content represent the author’s opinions.