Published on January 1st, 2020 | by Vijay Govindan0
Tesla Earnings In 2019 & 2020 — What Can We Learn? Plus, Happy New Year!
January 1st, 2020 by Vijay Govindan
There have been many pieces on Tesla stock’s rocket run over the last month. According to stockcharts.com, Tesla went from a low price of 328.69 on December 2nd, 2019, to a closing price of 430.38 on December 27th, 2019 (it has dropped a bit since then). This is a phenomenal return of 30.9% gain in less than 30 days. I speculated earlier on many reasons why it happened. It turns out, though, the reason may be very simple. Wall Street analysts are expecting Tesla to earn higher profits in 2019 and 2020 compared to what they thought 3 months ago.
Tesla earnings estimates have moved higher for Q4 2019, Q1 2020, 2019, and 2020 over the last 3 months.
The old adage on Wall Street is simple: higher earnings expectations will cause the stock price to follow. The trend for higher earnings is clear from all figures below.
The average Wall Street consensus for 2020 is Tesla earns $5.84 per share in profits. With 179.13 million shares outstanding, that would be 2020 profits of $1.044 billion. Cha-ching! The crazy part is one analyst expects more than $20 in profits for 2020. That would result in $3.582 billion in earnings. That’s a lot of gigafactories that can be built!!
Operating Cash Flow Less Capex
If Tesla does earn $1 billion next year, what does that do for Operating Cash Flow Less Capex? You may have forgotten, but earnings are a key part of Operating Cash Flow. Normal investors want to see if the company can earn money after investment in capital expenditures (property, plant, and equipment). According to this chart from the Q3 2019 Update, Tesla had Operating Cash Flow Less Capex of $1 billion over the prior 12 months (see the dark red bar on the far right side of the second chart):
From the Q4 2018 Update, Tesla lost $1 billion in net income in 2018. With that, it was able to earn $2 billion in net cash, thanks primarily to depreciation and stock-based compensation (see last row, fourth column from left in the table below). If earnings reverse to +$1 billion in 2020, I think we can expect Tesla to have $4 billion in operating cash flow for next year. Tesla has kept a tight lid on capital expenditures even with Gigafactory 3 (GF3), Model Y development, and Supercharger expansion. If we assume CapEx of $2 billion next year, the amount Tesla adds to its cash balance is $2 billion. The $2 billion in CapEx may be very pessimistic, though, considering how well Tesla managed its investments in 2019.
Cash & Cash Equivalents
At the end of Q3 2019, Tesla had $5.3 billion in cash and cash equivalents. If Tesla earns a similar amount in Q4 2019 as Q4 2018 ($200 million) plus depreciation and stock-based compensation ($700 million), Tesla will end 2019 with $6.2 billion. Adding the $2 billion we calculated above, Tesla may end 2020 with $8.2 billion in cash. With that much cash, growing revenue, and a multi-year technology lead, short sellers would argue Tesla is bankwupt for certain.
Why Are Analysts Raising Estimates?
This raises the question, why are analysts raising estimates? I say it’s a trifecta of good news.
1) GF3 is spinning up nicely based on pictures from outside the factory. Initial deliveries have already started in China from GF3. Estimates are for 150,000 vehicles produced in China per year, with Tesla eventually wanting to produce 500,000 a year.
2) We have the Model Y production and delivery launch this year. We have no idea how many Tesla will produce to start, but Elon Musk think the Y could outsell the Model 3, Model S, and Model X combined in time. Perhaps we will learn more on the Q4 2019 conference call.
3) Finally, an under-appreciated segment is Tesla Energy. We have the Megapack, Tesla Solar Roof V3, Powerwall business, and Virtual Power Plants all growing nicely.
2020 will set up Tesla for an even bigger 2021, when the CyberTruck, Semi, and GF4 in Berlin come online. All of this excludes dramatic increases in Full Self Driving.
I don’t expect $20 in earnings next year. Perhaps it is a good idea to temper expectations. We have seen this story before, in late 2018, when earnings estimates were raised and the stock climbed higher and higher. Suddenly, the rug was pulled out when profits disappointed overly ambitious targets and earnings estimates got cut dramatically by analysts. The stock followed suit. Innocent investors got burned.
Already, we see analysts starting up the FUD machine that Tesla will miss deliveries for 4Q 2019. A potential miss on deliveries by 1% causes the stock to move down close to 4%.
The good news is Tesla’s fundamentals on production and deliveries are just getting started. Include in that the fact Tesla had an official ceremony to celebrate the first deliveries coming out of GF3, news that is far more important than a potential short-term miss on deliveries and which almost nobody expected a year ago. The analyst story is good for the fast-trading algo bots, but not anyone with a pulse.
Tesla’s recent stock jump is joined by Nio, whose stock surged 60% higher after beating delivery estimates and reducing its quarterly loss. That’s a good omen for robust deliveries when Tesla numbers come out. We should be cheering on all companies that help Tesla on its mission to accelerate the world’s transition to sustainable energy.
Happy New Year to all my CleanTechnica readers! The Roaring 20’s look to be a large stepping stone that will change how we produce and consume electricity. May the new year and new decade bring us health, wealth, and a cleaner future ahead.
*Disclosure: I currently sold all my Tesla stock and am long on Tesla cars. I plan to buy back shares when the FUD reaches absurd levels. We’re not there yet.
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