Tesla’s electrifying results

Ben Staniforth, Research Analyst, Redmayne Bentley

The leading electric-only car maker produced another solid quarter, providing exceptional growth across all key metrics as it continues to silence its critics one quarter at a time.

Deliveries more than doubled during the quarter to nearly 140,000 cars helped the firm record US$8.77bn in revenues, up 39.2% from a year ago. This further helped the firm to lift quarterly profits to US$311m, again more than double that it was able to make during the same period last year. This now marks a fifth straight quarter of profitability for a company that not two years ago was burning through cash and losing money at an alarming rate, with some forecasting financial disaster.

This impressive set of results comes despite the COVID-19 pandemic causing a shutdown of some of its factories and many of its dealerships, as fans of the company turned to online orders to purchase one of their cars, despite waiting times that often stretched multiple months.

Given such a blowout quarter, this would typically mean entry into the coveted US S&P 500 index, with Tesla’s meteoric rise this year taking care of the indexes market capitalisation requirement of at least US$8.2bn, with the free float and four consecutive quarters of profitability requirements also taken care of. However, the electric car maker was snubbed for entry earlier this year in September, sending shares down 15% on the day.
The stock, however, continues to run higher despite the snub and despite several high-profile critics as demand is pushed continually higher by retail investors keen to enter the market, many for the first time. With price/earnings (p/e) ratio of over 1,000, however, many would struggle to see significant upside potential in the near-term. The stock’s valuation leaves no room for error and the market will not tolerate anything less. Long-term, however, Tesla is clearly a structural winner from the transition to electric powered cars and despite heavy competition from cash-rich incumbents, they are likely to remain ahead for the time being with heavy investments into technology such as driverless capabilities and large interfaces, of which Tesla is years ahead of anyone else.

Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not reliable indicators of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.