TSLA Tesla Inc

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 charles.grant@wsj.com

(END) Dow Jones Newswires

October 22, 2020 06:14 ET (10:14 GMT)

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