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A Tesla store in Wuhan, China, this month.
Getty Images
Earnings are always big business for
Tesla
stock. The shares have risen more than 100% since the company’s third quarter earnings release. More numbers are coming after the close of trading on Wednesday.
Analysts and investors will examine several key figures, along with statements by Elon Musk, to guess whether the stock will continue to rise or not until the next earnings release.
In October, Tesla (ticker: TSLA) reported 76 cents of adjusted earnings per share. This was much better than the 55 cents Wall Street was projecting. It was the fifth consecutive quarterly “hit” for the electric vehicle pioneer, continuing a series that began in the third quarter of 2019.
Before Tesla reported its third quarter 2019 figures, it was at around $ 51 per share. Now, the stock is over $ 880.
Sales are often a key element of corporate results, but they will not be the focus on Wednesday. Like the rest of the EV industry, Tesla releases delivery numbers before earnings, taking some of the drama out of top-tier results.
Profit margins are big business. Tesla is increasing its sales volumes and profit margins are expanding as the scale increases, as well as because it is opening up manufacturing capacity in lower-cost regions.
Tesla reported an automotive gross profit margin of almost 24%, not counting the regulatory credits for making zero-emission vehicles that the company sells to other automakers. Tesla earns more than its share of zero-emission cars, so it has surplus credits to sell to manufacturers who earn less than global regulators require.
Tesla generated nearly $ 1.2 billion in revenue from the sale of zero-emission credits in the first nine months of 2020. The fourth quarter figure will be closely watched by investors.
Bearish investors believe that sales of regulatory credit will eventually end, and that Tesla’s profits should be valued without this source of income. While more traditional automakers are launching their own EV models, potentially reducing the demand for regulatory credits, optimistic investors believe that regulations are becoming stricter, not more flexible.
Tesla also has much higher share-based compensation expenses than other companies due to the way Musk is paid. Optimistic investors will also support this. Stock-based compensation totaled more than $ 1.1 billion in the first nine months of 2020.
Obviously, if the investor deducts share-based compensation, he must use the fully diluted shares in circulation to assess Tesla. The fully diluted share count assumes that management’s stock options and guarantees that are in the money will eventually be exercised. Using this higher total count can reduce earnings per share.
After margins and regulatory credits, free cash flow will be the focus of investors. Tesla generated positive free cash flow in seven of the last nine quarters and about $ 1 billion in the first nine months of 2020. Wall Street expects about $ 930 million in free cash flow in the fourth quarter.
The final number that everyone – both bulls and bears – will be watching closely is the administration’s forecast for deliveries in 2021. In January 2020, Tesla said deliveries would exceed 500,000 next year. That was before the pandemic, but the company managed to deliver 499,550 vehicles.
Wall Street expects about 800,000 vehicles to be delivered in 2021, as a result of new production capacity in China, Germany and Texas. The estimate is higher than the approximately 740,000 projected at the time the third quarter figures were released.
The gains – a function of sales and profit margins – will also be seen, but they are not as important. Wall Street projects $ 1.01 in adjusted earnings per share and 73 cents according to generally accepted accounting principles. Stock-based compensation expenses normally generate the difference between GAAP and adjusted earnings for Tesla.
Tesla earned about 17 cents of adjusted earnings per share in the fourth quarter of 2019. Year-over-year comparisons are not so significant, however, because Tesla is growing rapidly. Tesla delivered about 112,000 vehicles in the fourth quarter of last year. The company delivered nearly 181,000 vehicles in the last three months of 2020.
But it’s not just about numbers. Qualitative factors are also important. At the top of the list is how the Biden administration will affect the US EV industry. Wedbush analyst Dan Ives believes that more environmentally friendly management can be a “game changer” and expects more tax credits for EV and customer incentives.
Ives values Tesla Hold’s shares, but has one of the highest price targets on the street, $ 950 a share. Shares closed Tuesday at $ 883.09, up 0.3%, while the
S&P 500
fell 0.2%.
Write to Al Root at [email protected]