Tesla Inc (NASDAQ:TSLA) will pop the trunk on quarterly earnings after markets close on Monday, pressing ignition on a week when it will be one of seven of Wall Street’s 10 largest companies coming to market, while 180 of the S&P 500 companies are scheduled to report results.
The electric vehicle (EV) maker has a number of issues that investors want to hear about, not least the recent crash of one of its cars where the driver reportedly thought the wheel was being directed by the Autopilot system, although this was countered by boss Elon Musk.
As well as fielding questions about that, the newly crowned technoking is also likely to be asked about the possible hit from Joe Biden’s proposed global tax of tech giants, the company’s big Bitcoin purchase, his thoughts on Dogecoin and maybe also the reported plans for a factory in the West Country.
The company’s fundamental business and its potential to grab market share as the globe shifts from petrol power to electric batteries is what has driven its US$700bn market valuation.
To that end, Musk is looking to scale up production while retaining the profitable record, with the fourth quarter of 2020 saw quarterly revenues rise 46% year-on-year to US$10.7bn and earnings per share (EPS) jump 60% to US$0.80.
The Wall Street consensus points to EPS of US$0.79 on revenues of US$9.92bn for the first quarter of 2021, with the company having this month reported record vehicle sales for the quarter of 184,800, more than double the 88,400 reported last year and about 10k ahead of forecasts.
Another big issue for Musk is that Tesla was forced to make a grovelling apology after a backlash from the state-run Chinese media following customer complaints.
“This is important,” says analyst Neil Wilson at Markets.com, “China is a key market for Tesla and other automakers who are seeking to tap the growing EV market in the world’s second-largest economy.
“Tesla has made a big investment in local production, which seems to be paying off.”
Reported sales of US$6.7bn in China last year, made the country the second biggest market for the firm after the US, whilst the Model 3 sedan was China’s best-selling electric vehicle in 2020 and the Model Y crossover in March almost doubling the level from the month before.
Reasons to put on the brakes
While this will not be met head-on in these results, competition is now the key for Tesla, as more of the ‘legacy’ car manufacturers putting the pedal to the metal as they play catch-up on their electrification strategy.
“It remains the case that the chief bear thesis on the stock is that current valuations imply a massive market share gain from the traditional OEMs,” says Wilson.
“Given the pace of progress they are making on the EV front, it seems hard to justify the Tesla multiple even allowing for ongoing sales growth and margin improvements.”
As Wilson noted, this month’s Shanghai auto show displayed a range of competition from local Chinese rivals such as Nio, Geely and Xpeng, while VW has been showing its EV metal this year and others such as Mercedes with its ‘Tesla killer’ this month, Jaguar Land Rover, Audi and Volvo are among the many have talked some big talk about their upcoming range battery-powered vehicles have also seen their electric vehicles met with approval, while as well as the Chinese EV hopefuls, investors will also soon be able to buy shares in lower-priced rival Lucid Motors.
“For Tesla, things are only going to get tougher,” reckons Wilson.
…or for optimism
Other analysts have been a lot more sanguine, with those at Wall Street brokerage Wedbush upgrading the stock on the back of the latest quarterly vehicle delivery numbers of 184,800 vehicles that they dubbed a “paradigm changer” for the electric car maker.
“We now believe Tesla could exceed 850,000 deliveries for the year with 900,000 a stretch goal, despite the chip shortage and various supply chain issues lingering across the auto sector,” said analyst Daniel Ives and his team.
“While the EV sector and Tesla shares have been under significant pressure this year, we believe the tide is turning on the Street and the eye popping delivery numbers coming out of China cannot be ignored with the trajectory on pace to represent around 40% of deliveries for Musk & co by 2022.”
The brokerage also sees Tesla’s profitability significantly improving over the next three to four years.
“We believe Tesla’s profitability/FCF profile significantly improves over the next 3 to 4 years with $20 of annual EPS potential by 2026 based on our projections,” said Ives.
And while the stock valuation is rich and the competition is building, fellow broker Canaccord Genuity believes Tesla “holds a several-year lead and is now expanding aggressively into storage and thus feel our multiple is warranted”.
The Canaccord analysts believe that Tesla’s focus on first-principle engineering will radically change the battery market, enabling the company to further the lead in battery EVs (BEV) and expand into the solar and home energy markets with its Powerwall products.
They pointed out that battery supply constraints will begin to alleviate in 2022, as the new 4680 battery cell design production comes online in Giga Nevada, Texas, and in Berlin, and with its partners Panasonic and LG, adding that ample battery supply will allow Tesla to meet its new aggressive Powerwall campaign, as well as Powerpack, and Megapack in full scale, often paired with solar installations.
Like others, they believe automotive gross margins will continue to improve to at least 25% as the Tesla Model 3/Y volumes increase from Giga Shanghai and entry models using lithium iron phosphate (LFP) batteries, and other tail-winds from China.