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Will Tesla’s Q4 results keep the share price riding high?

CMC Markets

Tesla’s financial year did not start well, with consecutive disappointing quarters making up the first half. Unsurprisingly, Tesla’s share price dropped steadily through to early June 2019, falling to $178.

In the eclectic car producer’s Q1 results, loss per share on an adjusted basis was $2.90, sharply down against the expected 69 cents, with revenue coming in at $4.54bn, versus the forecast $5.19bn. On an unadjusted basis, Tesla lost $702.1m, or $4.10 a share during the quarter ending 31 March. Tesla’s second-quarter results also missed expectations, with a loss per share on adjusted basis of $1.12 versus the expected 40 cents, and revenue coming lower than analysts’ expectations at $6.35bn, against $6.41bn.

Tesla’s share price turnaround

However, in the last few months, Tesla’s share price has undergone an astonishing reversal, helped by an about-turn in its Q3 results. Earnings per share came in at a far higher-than-expected $1.91, comfortably surpassing the estimated 24 cents, though revenue came in lower at $6.3bn against the expected $6.45bn. Tesla’s share price rose by as much as 17% following the release of the results.

Trading a touch above $210 a share in mid-September last year, the shares hit just shy of $550 earlier this month, passing the now infamous $420 level which became synonymous with co-founder and CEO Elon Musk’s famous tweet, where he spoke of securing funding to take the company private. He has since backed away from that prospect, releasing a statement a few weeks after the post stating that Telsa was “staying public”. This was as a result of investors persuading the renewable energy tycoon against the idea: “Given the feedback I’ve received, it’s apparent that most of Tesla’s existing shareholders believe we are better off as a public company,” Musk wrote. At market open on 22 January, the stock has gained 128% since the Q3 announcement on 23 October.

Making tracks in China

The recent opening of its $5bn Shanghai factory in China could turbocharge production further in 2020, having already helped propel Tesla’s share price through the $500 level, burning pretty much every single short position on the way up. It took less than 10 months for the factory to deliver its first vehicles, which will have an annual capacity of 150,000 Model 3 cars. By establishing this manufacturing base, the company can produce cars at a marginally lower cost for the Chinese market, which is one of the biggest for electric cars. Recognising the potential for further expansion within this market, Tesla plans to open a design, research and development centre in Shanghai.

Tesla plan to deliver on target

In April, it looked doubtful Tesla would get anywhere near its annual target of 360,000 to 400,000 cars for 2019, after a poor first quarter. However, due to a positive Q3 with 97,000 deliveries, there is a good chance that the company may squeak inside the lower bound of its range target of 360,000 deliveries, which would be a new record, with the Model 3 leading the way. If Tesla can deliver anywhere near 100,000 cars in Q4, it will meet its target.

Wednesday’s post-market earnings release will go some way to vindicating Elon Musk’s optimism of early last year, though whether it justifies the company’s rather rich valuation is another matter. On current valuations, Tesla is worth $92bn, putting it on a par with Volkswagen, and over twice the valuation of Ford.

 


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