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

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

Some market watchers decried Elon Musk’s electric car manufacturer for declining to provide precise guidance for the number of vehicle deliveries for 2021.

But Tesla said in the statement that it expects vehicle deliveries to grow faster than the 50% average annual growth it would normally expect, implying more than 750,000 cars will be shipped this year, compared to the 800,000 or so expected by Wall Street. 

Musk also confirmed that volume production of the Cybertruck pickup would begin next year and tweeted that deliveries of the top-of-the-range Model S Plaid will begin in February.

Having earlier this month reported just under 0.5mln deliveries for last year, a whisker short of its target despite the coronavirus 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 by 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 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.

Tesla attributed the lower profitability to a lower average selling price, warranty accruals and Model S & X changeover costs.

But more importantly, free cash flow in the quarter rose by 84% to US$1.9bn, boosted by regulatory credit sales, which was much stronger than the Street’s US$0.9bn forecast.

Added to the US$10bn raised from two share issues in September and December, Tesla 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.

Plaid Model S ships next month pic.twitter.com/HFUPTnQiPB

— Elon Musk (@elonmusk) January 28, 2021

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 in New York.

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.

At UBS the analysts said they expected a negative market reaction on the EPS miss “and the somewhat vague outlook”.

They noted that Tesla announced a long-awaited refresh of Model S and X, with first pictures of the Model S showing “small changes in exterior design but a significantly updated interior design”, which “should be appreciated” for the positive price/mix impact in 2021. 

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 Tesla,” he added.

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.”