Tesla is flying high. Its market value recently topped $100 billion. Auto sales have hit record highs. And on Wednesday, Tesla reported a profit for the final quarter of 2019 — its second quarterly profit in a row.
Company officials said the new Model Y crossover vehicle will ship by the end of this quarter, earlier than expected. That and the earnings -- which on a per-share basis exceeded analyst expectations -- sent Tesla’s stock price jumping again, to more than $600 a share.
While solidly in the black, fourth-quarter net income fell 25% compared with the year-ago quarter, to $105 million, as measured by generally accepted accounting principles. Revenue rose 2% year over year to $7.38 billion for the quarter. Of that, $133 million came from sale of regulatory credits.
For the full year, Tesla lost $775 million, compared with $1.06 billion in 2018. Its annual revenue grew 14.5% to $24.58 billion. The energy business, which includes solar energy installation and battery storage packs, declined slightly in the full year, from revenue of $1.55 billion to $1.53 billion.
Free cash flow rose 11% from the same quarter a year earlier, to $1.01 billion. That was nearly triple the rate of the previous quarter. But accrued liabilities and accounts payable — basically bills not yet paid — rose sharply from a year earlier. Accrued liabilities rose 38% to $2.9 billion, and accounts payable rose 11% to $3.7 billion.
The electric vehicle company’s share price, which closed at an all-time high of $580.99 on Wednesday, shot up as much as 12% in after-market trading on the news to around $653. It was already up 39%for the year.
Dan Ives of Wedbush Securities said in an investor note that although the company’s stock may be overvalued, the profitable quarter bodes well for the future.
“The company has the most impressive product road map out of any technology/auto vendor around ... and will be a “game changing” driving force for the EV transformation over the next decade with Model 3 front and center,” Ives wrote.
The company opened its new China factory earlier this month. Besides the highly anticipated Model Y, Tesla has a semi truck and a “cybertruck” pickup in the works.
That doesn’t mean the future’s all roses. Short sellers, who wager that the company’s share price will tumble, are still in the game, accounting for 20% of Tesla’s outstanding shares.
“They are not even remotely out of the woods,” said Peter DeCaprio, who, as president of investing firm Crow Point Partners in Boston, holds a sour view of Tesla’s prospects and sees the company shifting back to losses in the first quarter of this year.
Even some Tesla bulls, while giddy about Wednesday’s earnings report, don’t see a lot of upside in the stock price.
“I think Tesla is correctly valued,” said Ross Gerber, who runs Santa Monica investment firm Gerber Kawasaki with, he said, about 8% of its investments in Tesla. “If you’re looking for a value stock, it’s not Tesla right now. But it’s being recognized for the growth company it really is.”
Prospects for growth and earnings remain contentious subjects for bulls and bears.
Although total Tesla car deliveries grew 48% in 2019 to about 367,000 vehicles, the growth rate for the U.S. was only 14%, according to sales tracker InsideEvs.
And for the last quarter of 2019, Tesla sales in California, by far the company’s largest U.S. market, dropped by half compared with the year-earlier period, to 13,584. That’s according to Dominion Cross-Sell, which collects and analyzes registration data. Tesla doesn’t break out sales by state.
Tesla growth rates in Europe and China will be key to its growth prospects. Tesla sold about 109,000 cars in Europe last year, or about 31% of total EV sales, more than any other carmaker, said Matthias Schmidt, who runs SNA Data in Berlin. But as heavy regulations forcing zero-emission car sales take effect in Europe, the competition from Europe’s own carmakers will be fierce.
Tesla plans to build a new car factory near Berlin that eventually would produce 500,000 cars a year. Consistently rapid growth will be required to achieve that level.
Many analysts are looking at China to for a better bead on Tesla’s future. About 43,000 Teslas were sold in China in 2019, InsideEvs estimates. The company opened its new factory near Shanghai this month, and it plans to start pumping out cars an annual rate of 150,000, including the upcoming Model Y crossover. Annual capacity at the factory is planned to grow to 500,000.
It’s unknowable at this point what effect the coronavirus will have on Tesla’s ability to ramp up production in China. At the very least, the outbreak could curtail movement of people, vehicles and goods.
Whatever stems from the epidemic, Crow Point’s DeCaprio said, given weaker overall auto sales and intense EV competition, “I don’t think there’s the demand in China that people think there is.”
Gerber has a more optimistic view. Young, tech-savvy Chinese will gravitate toward Tesla, he said, and margins will be a lot better for cars made in China than those made in Tesla’s other plant in California.
“They’ll be more efficient with (employees) who can’t complain about the work environment,” he said. “And the labor cost is low.”
Financial data provider Factset reports that the mean target price for Tesla stock among 22 analysts is $399 a share — well below its current price but up nearly 150% over the last six months.
Three of those analysts think Tesla shares are ultimately worth $600 or more, and six of them think it’s worth $300 or less, with one analyst’s target as low at $215.