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29 January 2021

Production Capacity Drives Up Tesla Earnings

Tesla reported earnings for the final quarter of 2020 after the US markets closed on Wednesday. The electrical vehicle and progressive battery power company generated revenues US$340m over analysts’ expectations of US$10.4bn. Despite rising revenues, earnings per share fell short at US$0.80, versus the expected US$1.03.

The company’s sales guidance does not fall short of optimistic, even with these earnings results. Tesla expects its average annual growth rate in vehicle deliveries to be around 50% over the next few years. This is mainly due to the company’s new factories and its updated vehicle models. Tesla produced and delivered over 500,000 vehicles in 2020. The Gigafactory in Shanghai began to produce the Model Y in December, and the updated Model S and X launched in January 2021.

The fact is that Tesla is more than just a car company, and vehicles delivered is not the only metric to analyse when highlighting the potential of the company. Solar Storage Deployed (MWh) is a growing part of the company. Back in 2016 Tesla acquired SolarCity and it reversed the business model completely from long solar panel lease contracts, which were marketed via aggressive door-to-door salespeople, switching to a very cheap ‘cancel anytime’ programme. In Q4 of 2020, Tesla’s storage deployed rose 199% compared to Q4 2019. The strategy here is that as consumers are exposed to their branded solar products with these US$60 per month solar panel contracts, it raises awareness of the company as a whole, allowing a range of cross-selling of cars, batteries and the new Powerwall.

The company was initially asking customers to fork out another US$10,000 for the Full Self Driving Option on their Tesla vehicles. However, the company recently announced that this will be available on a subscription basis, which may be more appealing for customers to opt into. China is the largest electric vehicle purchaser in the world by nation, buying around 40% of all cars sold. China’s reiterated support for the company is certainly no disadvantage for Tesla in this case, with the expanding factory in Shanghai producing a sizeable contribution to the company’s record sales.

This earnings report confirmed a sixth consecutive profitable quarter for the company, with cash and cash equivalents up 209% from Q4 2019. This provides some safety in expanding its energy and power divisions, as well as funding the Tesla Austin (US) and Tesla Brandenburg (Germany) Gigafactories.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Production Capacity Drives Up Tesla Earnings
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