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Tesla Smashes 4th-Quarter Estimates Following a 2019 Turning Point

After the market closed on Jan. 29, Tesla Inc. (NASDAQ:TSLA) revealed its fourth-quarter and full-year earnings for fiscal 2019, sending shares up 7% on positive results that marked a turning point for the electric vehicle maker.

Revenue for the quarter was $7.38 billion, 2% higher than the prior-year quarter, while net income was $105 million, a 25% decrease from the prior-year quarter. GAAP earnings per share came in at 58 cents, marking a 28% decrease from the prior-year quarter, while non-GAAP adjusted earnings per share were $2.14, a 7% increase. Analysts had expected revenue of $7.1 billion and non-GAAP earnings per share of $1.74.


For the full year, revenue was $24.57 billion compared to $21.46 billion in 2018, while the net loss of $862 million compares favorably to the 2018 net loss of $976 million.

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As of Jan. 29, the company has a market cap of $104.72 billion at a price of $580.99 per share. It has a price-earnings ratio of 95.4, a cash-debt ratio of 0.37 and an interest coverage ratio of 0.22. GuruFocus has assigned it a financial strength rating of 4 out of 10 and a profitability rating of 3 out of 10.

Turning point

Investors practically held their breath in anticipation of Tesla's third-quarter 2019 earnings report. Many considered it a make-or-break point for the company, which, with few minor exceptions, had been posting net losses since its beginning. As the forefront of the luxury electric vehicle market, there was pressure to prove that such a company could transition from a development phase to profitability.

Fortunately for Tesla, it managed to report a profit of $143 million in the third quarter, and the fourth quarter marks the first time in the company's history that it has posted back-to-back profits. Thus, after more than doubling in price from approximately $230 per share before third-quarter 2019 earnings were reported, we may see prices fly even higher on investor enthusiasm.

Shanghai Gigafactory

Jan. 7 marked the groundbreaking ceremony of Tesla's new Gigafactory in Shanghai, which came with a new purchase tax exemption from the Chinese government that will save buyers an estimated 99,000 yuan ($14,000) on a new Tesla.

China is the largest electric vehicle market in the world, which makes it a crucial market for Tesla's long-term success. However, the fact of the matter is that you can't sell a car in China at the same price you can sell it at in the U.S. More than half of electric cars sold in China cost less than $14,300, while the price tag of Tesla's Model 3 is at $46,400 after a 9% reduction from $51,000. Many people in China face an additional barrier to buying a vehicle - the license plate restrictions in big cities.

Positive consumer response to the company's vehicles has upped its predictions for China sales, and Tesla plans to ramp up annual Model 3 production to 150,000 in the Shanghai factory. Looking at analyst forecasts reveals that Chinese analysts are far more positive about Tesla's prospects in the country than U.S. analysts are. For example, LMC Automotive predicts sales of 21,000 China-built Model 3s in 2019, while Shanghai-based AutoForesight expects sales to reach 100,000 units.

Stacking up sales

The fourth quarter saw production of 17,933 Model S/X vehicles (down 29% year over year) and 86,958 Model 3 vehicles (up 42% year over year). Over the same period, Tesla delivered 19,475 Model S/X units (down 29% year over year) and 92,620 Model 3 units (up 46% year over year).

These numbers illustrate a shift in the consumers purchasing Tesla vehicles. More people are buying the cheaper Model 3, which is a positive sign for the company's mass-production appeal.

Automotive revenues were $6.36 billion for the quarter compared to $6.32 for the prior-year quarter, which may seem low considering that approximately 20,000 more units were delivered. The increase in Model 3 sales relative to other models accounts for most of this, though part of it is also attributable to decreased profit margins for the vehicles sold in the Chinese market.

Looking forward

In early 2018, car sales were booming, but they have been in a global decline ever since. Global car sales are predicted to drop by 3.1 million in full fiscal 2019, according to economist forecasts from Fitch Ratings, which would mark the steepest auto sales decline since the 2008 financial crisis.

"The downturn in the global car market since the middle of 2018 has been a key force behind the slump in global manufacturing and the car sales picture is turning out a lot worse than we expected back in May," Fitch Ratings' chief economist Brian Coulton said in a statement.

Auto sales are expected to decline by 4% on average across global markets, with a 2% decline in the U.S. and an 11% decline in China. The China figure is hard to determine the accuracy of in light of the U.S.-China trade war.

Despite the expected decline in global auto sales, Tesla posted optimistic guidance for 2020.

"For full year 2020, vehicle deliveries should comfortably exceed 500,000 units. Due to ramp of Model 3 in Shanghai and Model Y in Fremont, production will likely outpace deliveries this year. Both solar and storage deployments should grow at least 50% in 2020," reads the company's earnings report, estimating an increase of approximately 37% in units delivered for the year.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful analysis or consult registered investment advisors before taking action in the stock market.

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This article first appeared on GuruFocus.