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Tesla Inc. released better than expected earnings reports pushing its stock to record highs of over $630 in pre-market. Such figures allowed its CEO Elon Musk to earn $2.3 billion within an hour.
After several years of failing to meet the excessively optimistic forecasts, Tesla Inc. delivered in 2019. The company continued its profitability streak in Q4. It earned around $105 million and generated $7.4 billion in revenue. That represents 56 cents a diluted share, compared with $140 million, or 78 cents a share, in the same year-ago period. These results beat expectations and sent shares flying in after-market trading on January 29.
Most of the promises that the Chief Executive Elon Musk made were delivered last year. This development opens the company up to higher expectations and ambitions. Tesla also announced that productions of the Model Y had started this January in its Fremont, California factory, ahead of schedule.
Shares shot up as high as 11.45% in the after-market trading. Tesla earned $386 million, translating to $2.14 a share in Q4 when adjusted for one-time items. The nearly $7.4 billion that Tesla reported was 17% higher compared to the $6.3 billion generated in the previous period. Notably, the revenue in Q4 was just 1% higher than the $7.2 billion recorded in Q4 2018.
Tesla’s earnings and revenue surpassed analyst expectations. According to poll results done by FactSet, many anticipated adjusted earnings of $1.77 per share on revenue of $7 billion. The company also reported a free cash flow of $1 billion. Furthermore, Tesla’s cash and cash equivalents balance surged by $930 million to $6.3 billion in Q4.
Capital expenditures also surged by 27% to $412 million compared to the same period in the previous year. The construction of the Shanghai factory catalyzed this growth. But, the 2019 capital expenditures reached $1.3 billion, which is significantly lower than the $2.1 billion realized in 2018.
Although revenue growth was seen compared to Q3 2019, it was slightly lower than in the same period in 2018. More leases offset Tesla’s growth. Model 3 became a more significant portion of the lease mix, and the introduction of standard range trims of the 3 version and slight adjustments of vehicle pricing affected the earning as well. The report reads:
“These changes have resulted in a reduction to the average selling price (ASP) relative to 2018. We do not expect ASP to change significantly in the near term, which means volume growth and revenue growth should correlate more closely this year.”
The Q4 report showed that Tesla would probably rely on China and Model Y to achieve revenue growth. This strategy seems the most viable for the company even as deliveries of its higher profit margin Model S and Model X reduce.
In Q4 2019, Tesla delivered 19,475 Model S and Model X, representing a 29% decline from the same period in 2018. On the other hand, the cheaper Model 3 deliveries continued to rise. Tesla delivered up to 92,620 Model 3 vehicles in Q4, representing a 46% increase from the same period 2018.
The after-hour surge in share prices continued as Tesla hosted a conference call with investors. Everything was positive such that even potential delays in the Model 3 production in Shanghai as a result of the coronavirus outbreak did not sway investors’ enthusiasm.
Zach Kirkhorn, Tesla Chief Financial Officer, said that Tesla is expecting:
“A one- to one-and-a-half-week delay in the ramp of Shanghai-built Model 3 due to a government-required factory shutdown may arise. This may slightly impact profitability for the quarter but is limited, as the profit contribution from Model 3 Shanghai remains in the early stages. We are also closely monitoring whether there will be interruptions in the supply chain for cars built in Fremont [Calif.].”
He was commenting about the deadly virus outbreak. The electric car manufacturer company delivered a game-changing Q4 with colossal cash flows and strong profitability point to the dawn of a new era for Elon Musk and Fremont going forward. Tesla’s “bull party” is likely to continue as momentum increases globally for electric vehicles.
In 2019, Tesla delivered 367,500 vehicles representing a 50% growth from 2018. That growth is in line with its guidance range of 360,000 to 400,000 vehicles. Official reports indicate that the 2020 delivery guidance represents a 36% increase over last year’s deliveries standing above 500,000 units.
In an analyst call, Musk said the company might showcase its latest battery technologies and partnerships on a “battery day,” scheduled for April. Musk commented about the company’s battery knowledge:
“We are in deep. We know a lot about batteries. Wow. Next level Deeper and more accurate insights than many of the larger institutional investors and analysts.”
The stock has been rising since mid-December smashing records. The surge has even pushed the company’s valuation above $100 billion. Now its price is over $634 in pre-market. On January 29, the shares ended the day at a record earning Elon Musk up to $2.3 billion within 60 minutes. In the last 12 months, Tesla shares gained 94% outpacing S&P 500 index at 25% and the Dow Jones Industrial Average at 18%.