Key points to remember
- Adjusted EPS was $0.80 versus the $1.15 expected by analysts.
- Revenue narrowly exceeded analysts’ expectations.
- Vehicle deliveries showed robust year-on-year growth.
- Results were positively impacted by volume growth and regulatory credit revenue growth.
What happened
Tesla announced adjusted EPS for the fourth quarter of fiscal 2020 that largely missed analysts’ expectations. But that was almost double the figure posted in the year-ago quarter and was the sixth consecutive quarter of profits. Revenue beat analyst forecasts by a narrow margin. Tesla’s vehicle deliveries for the quarter, announced earlier this month, increased at a healthy pace.
Tesla noted that its results were positively impacted by volume growth and regulatory credit revenue growth, but that price reductions on certain car models are offsetting some of that positive impact.
(Below is the original Earnings Snapshot from Investopedia, published January 25, 2021.)
What to look for
Tesla Inc. (TSLA), the electric car maker, is coming off a breakthrough year in which it posted a fifth consecutive quarter of profitability for the first time, joined the S&P 500 and became the world’s most valuable automaker as its share price soared. It also made CEO Elon Musk the richest man on the planet. But despite this success, Tesla’s global market share remains tiny, its sales are tiny compared to the biggest automakers, and skeptics say Tesla’s stock is dramatically overvalued. . Its price-to-earnings ratio is 1,616 times earnings.
Given this high valuation, investors will be looking for strong financial results when Tesla reports results on January 27, 2021 for the fourth quarter of fiscal 2020. Analysts expect a significant increase in adjusted earnings per share (PES) on strong revenue growth over the prior year quarter.
Another key metric of interest to investors is Tesla’s vehicle deliveries, whose fourth quarter results were released earlier this month. The number of vehicles delivered by the electric automaker during the fourth quarter increased significantly compared to the same quarter a year ago.
Tesla shares have soared in 2020. The stock’s outperformance over the past year was briefly interrupted by the pandemic-induced stock market crash between late February and late March 2020 and a sharp pullback between late August and early September. But that hasn’t stopped Tesla shares from posting a total return of 672.1% over the past 12 months, well above the S&P 500’s total return of 16.0%.
Source: Trading View.
One driver of the stock was Tesla’s success in posting more consistent earnings after years of erratic earnings performance. Adjusted EPS increased 105.2% in the third quarter of fiscal 2020, marking the fifth consecutive quarter of profitability. Revenue increased 39.2%, its largest increase since the second quarter of fiscal 2019. Tesla noted that revenue growth was primarily driven by substantial increases in vehicle deliveries as well as growth in other parts of its business.
Results for the second quarter of fiscal 2020 were mixed. Revenue fell 4.9%, only the second quarter of revenue declines in at least 15 quarters. However, Tesla posted positive adjusted EPS compared to an adjusted loss per share in the year-ago quarter.Granted, Tesla’s positive second-quarter earnings weren’t fueled by strong operating results. Instead, they have been spurred by sales of zero-emissions regulatory credits to other automakers, which need those credits to avoid penalties.Analysts expected Tesla to post a loss in the second quarter of fiscal 2020.
The second quarter also marked the fourth consecutive quarter of positive growth GAAP earnings for Tesla, which qualified the company’s stock for inclusion in the S&P 500. Originally passed over for inclusion in September, Tesla was finally added to the overall market index in December.
Analysts expect Tesla’s profitability to continue in the fourth quarter of fiscal 2020. Adjusted EPS is expected to increase 178.8% and revenue is expected to increase 44.5% over the same period of three months a year ago. For the full year 2020, analysts expect adjusted EPS to increase 6,330.8% as annual revenue increases 28.3%.
| Key Tesla metrics | |||
|---|---|---|---|
| Q4 2020 (fiscal year) | Q4 2019 (fiscal year) | Q4 2018 (fiscal year) | |
| Adjusted earnings per share ($) | 1.15 (estimated) | 0.41 | 0.39 |
| Revenue ($B) | 10.7 (estimated) | 7.4 | 7.2 |
| Vehicle deliveries (K) | 180.6 (actual) | 110.7 | 89.5 |
Source: visible alpha; You’re here.
As mentioned above, investors are also interested in Tesla’s vehicle deliveries. Tesla’s core business is manufacturing electric cars and it needs to continue to expand production in order to increase revenue and profits. The electric car manufacturer has made a number of key acquisitions in recent years, including German companies Grohmann Engineering GmbH and Perbix Machine Co. Inc., to increase its manufacturing efficiency and capacity. The increase in production efficiency and capacity is important in justifying Tesla’s high valuation. And while it may currently dominate the EV market, other automakers are moving aggressively to challenge Tesla’s dominance.
So far, Tesla has been able to continually expand vehicle deliveries, with the exception of the second quarter of fiscal 2020, when deliveries fell 4.3% amid the pandemic.Previously reported fiscal 2020 fourth quarter vehicle deliveries increased 63.1% year over year (YEAR) after rising 44.1% year-over-year in Q3 2020. The fourth-quarter increase marked the fastest pace of growth since Q2 2019. For the full fiscal year 2020, Tesla delivered a total of 499,550 vehicles for an annual rate of 35.9%.While this rate of growth is impressive for most companies, it may be a red flag for Tesla and its investors. The 2020 growth rate was the slowest for annual vehicle deliveries since fiscal 2017 and the second slowest growth in six years.
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