A record quarter for Tesla TSLA 1.57%
it is not as fast as it looks.
Tesla announced on Saturday morning that it delivered 180,570 cars worldwide in the fourth quarter, setting a new company record. This brings the 2020 total just a shy of 500,000, in line with the company’s latest guidance. The company also said it will soon start delivering customers its Model Y crossover vehicle produced in China.
While reaching the guidance is certainly good news, it hardly represents a gigantic operational feat that should dazzle Wall Street. To begin with, meeting operational forecasts is a routine event for most S&P 500 members, to which Tesla was added last month.
And investors should not forget that Chief Executive Elon Musk once claimed in 2016 that Tesla would sell a million cars in 2020. Since he made that claim, Tesla’s shares have gone up almost fifteen times. Last year also came and went without Musk’s promise of a million fully autonomous “robotáxis” on the roads by the end of 2020 coming true.
Going back to the present, the company said it produced almost as many cars as it delivered to customers in the fourth quarter. But in October, Tesla said it had installed enough production capacity to make 210,000 in the quarter, suggesting that the rate of capacity utilization in the quarter was in fact quite prosaic at 86%.
As a result of last year’s torrid recovery, Tesla’s market capitalization stands at almost $ 670 billion. This equates to $ 1.3 million per car sold last year, and is about seven times the combined market values of Ford and General Motors.
Still, Tesla has a tiny share of the global automotive market and competition for electric cars is starting to heat up. To justify the stock price, Tesla should go beyond its own predictions, not just stick to them.
Furthermore, the small profit Tesla makes is strongly flattered by the sale of regulatory credits to help rivals meet emissions requirements. Although the fourth quarter count is not revealed until Tesla announces the full financial results, Tesla recorded $ 1.3 billion in such sales in the previous four quarters, which generate a 100% profit margin. That source of profit could weaken as more electrical competition from old car makers goes online, which could mean fewer buyers for credits.
These concerns do not bother shareholders who are making big gains. But recent history offers a warning: Tesla’s market value has been cut in half, in two episodes since 2018. If that happened, the shares would still be valued at about 700 times previous earnings. Auto industry leaders have historically been fortunate to get a 10-fold profit.
Musk wisely decided to sell $ 10 billion in shares last year amid the furious rise. For the average investor, it is probably a good idea to follow your example.
Write to Charley Grant at [email protected]
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