Tesla Stock Price Still Makes No Sense -- Heard on the Street
By Charley Grant
Even record results from Tesla underscore a dangerous truth for
shareholders: Wall Street's favorite stock is a car maker sporting
a valuation that tech darlings can only dream about.
Headline third-quarter results from Tesla were very strong.
After reporting record vehicle deliveries last month, Tesla
reported $8.7 billion in sales and earnings of 27 cents a share on
Wednesday. The sales figure topped analyst expectations and the
stock continued its relentless march higher in after-hours trading.
It was the company's fifth consecutive quarter of profits,
according to generally accepted accounting principles.
There is other good news. Chief Executive Elon Musk wisely took
advantage of the company's surging share price and raised $5
billion via a stock sale in September and Tesla ended the quarter
with $14.5 billion in cash on hand, by far the highest tally the
company has ever reported.
None of that means the stock is trading anywhere near fair
value, however: Tesla has earned just 50 cents a share over the
past four quarters, so shares trade at more than 800 times trailing
earnings. Its market value approaches $400 billion, or roughly five
times the combined value of Ford and General Motors.
What's more, those profits are heavily flattered by sales of
regulatory credits to help rivals meet emissions mandates. Tesla
has booked $1.3 billion in such sales over the past four quarters,
which carry a 100% profit margin. Total net income over that period
is just $556 million. That profit source might not be available in
the years to come as more electric competition from legacy auto
makers comes online.
To have a chance at justifying its valuation, Tesla will need to
dominate the auto industry. However, Tesla said achieving its
full-year goal of 500,000 global vehicle deliveries "has become
more difficult," despite its record results. While the company
didn't walk back that goal altogether, it said "further
improvements in logistics and delivery efficiency at higher volume
levels" are needed to achieve it. By way of reference, GM sold
about 660,000 cars in the U.S. in the third quarter alone.
Meanwhile, updates on several of Mr. Musk's past proclamations
about new products were either absent or vague. Tesla didn't
provide a production timeline for its semi truck or
second-generation Roadster sports car, products it unveiled in
2017. Mr. Musk said the pickup truck, which Tesla showed off last
fall, might be available by the end of next year "if all goes
well." There was also no update on Mr. Musk's April 2019
declaration that Tesla could have one million fully self-driving
"robotaxis" on the road by the end of this year.
Fantasies about the future can be far more pleasing than the
brutal, competitive nature of the day-to-day auto business. For
Tesla shareholders, confusing dreams with reality is still likely
to prove expensive, eventually.
Write to Charley Grant at email@example.com
(END) Dow Jones Newswires
October 22, 2020 06:14 ET (10:14 GMT)
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