Tesla earnings almost double but come in short of Wall Street forecasts

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Tesla Inc (NASDAQ:TSLA) shares reversed in after-hours trading following a mixed set of results where it beat revenue expectations but missed on earnings.

The electric car manufacturer led by Elon Musk also declined to provide precise guidance for the number of vehicle deliveries for 2021.

“Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries. In some years we may grow faster, which we expect to be the case in 2021,” Tesla said in the statement, though it did confirm that volume production of its Cybertruck pickup would begin next year.

Having earlier this month reported just under 0.5mln deliveries for last year, just a whisker short of its target despite the pandemic, the big focus for these numbers was on profitability.

At the top line, a 61% increase in Tesla’s total deliveries to 180,667 in the fourth quarter led to quarterly revenues rising 46% year-on-year to US$10.7bn.

The rise in deliveries saw a shift from higher-priced Model S and Model X cars to the more affordable Model 3 and Model Y as production of the latter began in the new Gigafactory Shanghai.

This shift to lower priced models meant that while profit margins in the fourth quarter were much improved year-on-year, they were much lower than the third quarter and so underlying earnings per share (EPS) came up short of Wall Street forecasts.

Operating income (profit) was up 60% to US$575mln and EPS of $0.80 was up 95% year-on-year, although some way short of the $1.03 consensus estimate.

More importantly, free cash flow in the quarter rose 84% to US$1.9bn, boosted by regulatory credit sales.

Added to the US$10bn raised from two share issues in September and December, Musk could call upon US$7bn of net cash at the company’s year end, up from net debt of US$7.2bn a year ago.

That followed US$1.2bn of capital expenditure during the quarter as Tesla hurries the construction of new gigafactories in Berlin, Germany and Austin, Texas.

Shares in Tesla fell 5% to US$820.39 in after-market trading overnight.

Analyst Ipek Ozkardeskaya at Swissquote Bank said the fall “will either be an opportunity to buy the Tesla shares at a temporary dip, or a cue for a deeper downside correction, which could pull Tesla’s price, which rose by 700% over the past year, to a more reasonable level”.

She noted that the latest survey of 41 analysts by Bloomberg points at a twelve-month average target price near $560 per share.

Nicholas Hyett at Hargreaves Lansdown said Tesla might argue that the shift from premium Model S/X vehicles to lower priced Model 3/Ys “was inevitable as production is only just gathering pace in some factories, and as more vehicles are fed through production lines profitability will improve”.

“That’s true, but it relies on global demand for an ever-increasing number of Teslas.”

However, he noted that an increasingly competitive landscape means Tesla will have to work harder in the future.

“To make matters worse Tesla relies heavily on regulatory credits at the moment to boost profitability. It sells those credits to less carbon friendly rivals, but as those rivals begin producing EVs of their own, demand will fall and supply will rise. If Tesla hasn’t built the necessary scale by then, delivering the planned growth and accompanying margin improvements may be a struggle. 2021 is a big year.”

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