Tesla (TSLA) ended 2019 as the hottest stock on the market and the shares, which are up more than 70% year to date, haven’t given up much ground despite the pandemic. Better-than-expected quarterly deliveries for its flagship vehicles has been the major catalysts. Can the stock still race higher?
The luxury electric car manufacturer will report first quarter fiscal 2020 earnings results after the closing bell Wednesday. In the three months that ended March, Wall Street expects Tesla to report a per-share loss of 18 cents on revenue of $5.85 billion. This compares to the year-ago quarter when the loss came to $2.90 per share on revenue of $4.54 billion. For the full year, ending in December, the company is expected to earn $2.76 per share, compared to earnings of 20 cents a year ago, while full-year revenue of $28.02 billion would rise 14% year over year.
In the fourth quarter, Tesla reported adjusted profit well above Wall Street expectations, leading to increased optimism. From its March 23 low, shares of Tesla have skyrocketed by as much as 110%. The gains have been driven by a combination of factors. Not only are investors anticipating a better-than-expected Q1, the coronavirus pandemic has effectively placed Tesla in the driver's seat in the electric vehicle race. For that matter, Tesla is also in the passenger seat and occupies both rear seats.
The company is benefiting from what is perceived as nimbler business model than its Detroit rivals to weather the coronavirus-induced economic destruction. Given the dire financial straits its competitors are in, namely Ford (F) and General Motors (GM), which are not closing assembly plants, Ford and GM are scaling back investments on their electric vehicle capabilities. This strengthens Tesla’s electric vehicle lead in the coming years, making Tesla a “must own stock,” according to some analysts.
In a recent note, analysts at Goldman Sachs forecast Tesla’s electric vehicle market penetration to rise to nearly 15% by 2030, from 2% in 2019, even amid lower gas prices due to the ongoing crude-oil oversupply and lower demand. “Tesla is “the clear market leader in EVs in terms of battery range and market share (and we expect it to maintain a strong competitive position in the EV market long-term),” the analysts noted while initiating the stock with a Buy rating with a $864 price target.
On Wednesday the market will nonetheless want updates on the company’s progress on several fronts, namely gross margin sustainability, cash burn rate, second-half delivery targets and an update on assembly capacity at its Gigafactory in Germany and China. Earlier this month, Tesla surprised investors when it released Q1 production and delivery numbers that were close to Street consensus.
Vehicle production and deliveries of 102,672 and 88,400, respectively, marked a year-over-year jump of 56.5% and 40.3%. This was the company’s best-ever Q1 performance. Notably, even though the company shut down much of its production in late March, it did not use the opportunity to pull its guidance for the year of 500,000-plus deliveries. The company recently announced it will raise prices for two China-made Model 3 variants after China cut subsidies on electric vehicles. Wall Street will want Tesla to show more profitability and an improved cash position.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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