reported another blowout report this quarter, but the stock seems awfully overvalued at this point. Yes, TSLA shares could continue to squeeze. And yes, we get the bull case for this vertically integrated clean energy company that created and still dominates the electric vehicle market. But the >$150 bln valuation is awfully demanding.
The big picture narrative, as we see it for TSLA right now, is as follows: the stock was a darling for big shorts up until mid-2019 because it hadn’t figured out the puzzle of matching up margins and scalability in its signature niche. And lots of really smart well-capitalized folks (Jim Chanos, David Einhorn, etc) believed that this puzzle was impossible to solve. And they placed massive bets against the stock on that thesis.
Then, somehow, it would appear as though Mr. Musk beat them and figured it out. Now, in a drumbeat of rapturous bullish news, the short-squeeze is underway in a big way. But the “evening star” technical pattern that appeared on Tuesday is a sign that the run may be over for now. And the analysts have laid a foundation – post-earnings – to justify some concern here, which could come to recapture the narrative despite the parabolic TSLA chart we saw in January.
Needham’s Rajvindra Gill, for example, stated, "Coming off of record deliveries, Tesla ended the 4Q with its 2nd consecutive profit. Moreover, it announced its ambitious goal of delivering 500K vehicles in CY20, implying 36% growth over its 367K shipments in CY19. This goal is highly dependent on robust Model Y production in Fremont and a ramp in Model 3 production at Gigafactory Shanghai. While TSLA has begun to show signs of profitability, we struggle with the recent run-up in the shares. Revenue growth actually decelerated in 2019 to 14.5% vs. 82.5% last year, and net income was only $36MM for the year. We have not yet seen an inflection point in gross margins either. We believe the valuation of 85x our new '21 EPS estimate is unwarranted given the slowing revenue growth and intensifying competition."
Tesla Inc (NASDAQ:TSLA), as you are likely aware, frames itself as a company that designs, develops, manufactures, and sells electric vehicles, and energy generation and storage systems in the United States, China, Norway, and internationally. It’s the big play in the electric car space. It’s also quite likely positioned to become the big play in the autonomous vehicle space over the long term, which may be part of what’s driving the parabolic nature of the action of late.
The company operates in two segments, Automotive, and Energy Generation and Storage. It also provides electric vehicle powertrain components and systems to other manufacturers; and services for electric vehicles through its company-owned service centers, Service Plus locations, and Tesla mobile technicians. This segment sells its products through a network of company-owned stores and galleries.
The Energy Generation and Storage segment – the Gigafactory, et al – offers energy storage products, such as rechargeable lithium-ion battery systems for use in homes, commercial facilities, and utility grids; designs, manufactures, installs, maintains, leases, and sells solar energy systems to residential and commercial customers; and sell renewable energy to residential and commercial customers.
As noted above, the company beat the street in solid fashion, and continues to burn the bears. Here are the basic facts from its earnings report card last week:
Our TSLA Earnings Summary:
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Tesla beats by $1.53, beats on revs; guides FY20 deliveries above consensus
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Reports Q4 (Dec) earnings of $2.14 per share, excluding non-recurring items, $1.53 better than the S&P Capital IQ Consensus of $0.61; revenues rose 2.2% year/year to $7.38 bln vs the $7.05 bln S&P Capital IQ Consensus. GAAP gross profit of $4.1B remained essentially flat in 2019 compared to 2018.
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Volume growth and successful cost reduction efforts were offset by normalization of ASP, mix shift towards Model 3 and a higher lease mix. Sequentially, GAAP gross margin remained relatively flat in Q4 at 18.8% vs. 18.6% consensus, while we ramped Model 3 production at Gigafactory Shanghai.
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Auto gross margin -30 bps QoQ to 22.5%.
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For full year 2020, vehicle deliveries should comfortably exceed 500,000 units vs. ests near 475K. Due to ramp of Model 3 in Shanghai and Model Y in Fremont, production will likely outpace deliveries this year. Both solar and storage deployments should grow at least 50% in 2020.
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Reiterates positive GAAP net income and FCF with temporary exceptions due to the lunch of new products
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Production ramp of Model Y in Fremont has begun, ahead of schedule.
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Model 3 production in Shanghai is continuing to ramp while Model Y production in Shanghai will begin in 2021. “We are planning to produce limited volumes of Tesla Semi this year.”
Our Tesla Conference Call Notes:
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At the company's Fremont factory, it is producing at a rate the same as the Nummi factory did in 2016.
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In FY19, company managed to generate more than $1 bln of FCF while building a factory in Shanghai.
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On Model Y, the company expects first deliveries in limited quantities later this quarter and will ramp over subsequent quarters.
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This year for the Shanghai-built Model 3, it expects to achieve run rate production and delivery rates. In addition, the company expects to have completed the majority of planned supply chain localization at the factory.
