Tesla stock surged from Wednesday afternoon after the company’s earnings release. At one point in after-hours trade the stock jumped more than 10 percent — and that was on top of a 4% increase on Wednesday during the trade day. The step brought shares above $880, or up by 270% over the past year and by 2020 alone by more than 100 per cent.
Growth stock is smashing the market outright. Yet what was it that brought the stock of the electric-car manufacturer yet another lift higher in Tesla’s first-quarter update Wednesday? Here’s a look at three main reasons investors are confident after the latest quarterly update from the electric-car maker.
1. Beneficial for a Third Quarter in a Row
Perhaps the key reason Tesla stock jumped was a better-than-anticipated first-quarter results for the company. Its adjusted earnings per share was $1.24, average prediction by crushing analysts for a loss of $0.36 per share. In addition, Tesla posted notably a small profit of $16 million (nine cents per share) based on widely accepted accounting standards (GAAP).
“Q1 2020 was the first time in our history that we achieved a positive GAAP net income in the seasonally weak first quarter,” Management said in the first quarter statement.
That reflected the third quarter in a row that both GAAP and non-GAAP based Tesla was productive. Profits for the quarter rose 32 per cent year-over-year to $5.99 billion, powered by strong production in the first quarter and deliveries of vehicles.
2. Model Y’s Impressive Beginning
Over the last year, one factor investors have been so optimistic on Tesla stock is the accelerated execution speed of the company. The firm put a factory in China online in late 2019, less than a year after breaking ground on it. Tesla then started shipping its latest Model Y crossover in March 2020 six months ahead of the company’s initial timetable for the car.
Now Tesla has yet another significant bit to report to investors on its improved execution pace: Model Y sales contributed a gross profit over the period, marking “the first time in our history that a new product has been profitable in its first quarter,” Tesla stated.
3. Improved Profitability in Shanghai
A further promising sign of success over the quarter has been the improved gross margin for the product. During the quarter, Tesla’s automotive gross profit margin was 25.5% — the best the firm has seen in 18 months. Although higher regulatory credit revenue gave this key metric a boost, another advantage driving sequential margin growth at the company’s new factory in Shanghai was improved profitability, Tesla said. The company further said it now plans to reach a Model 3 rate of production of 4,000 units per week by mid-2020 at its Shanghai plant.
What about the Novel Coronavirus?
Tesla of course recognized that COVID-19 developed the company’s challenges. “It is difficult to predict how rapidly automobile manufacturing and its global supply chain will return to prior levels,” said the management. The company’s California factory is currently pausing as Tesla copes with economic constraints as part of an attempt to help reduce the coronavirus spread.
Additionally, leadership said it is removing guidance for positive net income and free cash flow in the medium term, stressing a “wide range of potential outcomes” during this unpredictable period. “We will again revisit our 2020 guidance in our Q2 update.”
Comforting investors, Tesla said it considers it has enough liquidity to proceed substantial investment in its product roadmap and long-term capacity extension while also managing the near-term COVID-19 difficulties.
Tesla finished the quarter with $8.1bn in cash. Yet free cash flow was negative at $895 million due to a combination of concurrent inventory growth due to the coronavirus interruption operations and Model Y manufacturing capacity investments.
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