Cleared Hurdle Still Leaves Tesla Stock in Ludicrous Mode -- Heard on the Street
03 January 2021 - 8:46AM
Dow Jones News
By Charley Grant
A record quarter for Tesla isn't as speedy as it seems.
Tesla announced on Saturday morning that it delivered 180,570
cars world-wide in the fourth quarter, setting a new company
record. That brings the 2020 total just shy of 500,000, in line
with the company's most recent guidance. The company also said it
would soon begin to deliver its China-produced Model Y crossover
vehicle to customers.
While hitting guidance is certainly good news, it hardly
represents a towering operational feat that should dazzle Wall
Street. For starters, meeting operational forecasts is a routine
event for most members of the S&P 500, to which Tesla was added
last month.
And investors shouldn't forget that Chief Executive Elon Musk
once claimed in 2016 that Tesla would sell a million cars by 2020.
Since he made that claim, Tesla stock has rallied nearly
fifteen-fold. Last year also came and went without Mr. Musk's
promise of one million fully autonomous "robotaxis" on the roads by
the end of 2020 coming to fruition.
Turning back to the present, the company said it produced nearly
as many cars as it delivered to customers in the fourth quarter.
But back in October, Tesla said it had installed enough production
capacity to make 210,000 in the quarter, suggesting the capacity
utilization rate in the quarter was in fact a fairly pedestrian
86%.
As a result of last year's torrid rally, Tesla's market value
sits at nearly $670 billion. That amounts to $1.3 million per car
sold last year, and is about seven times the combined market values
of Ford and General Motors. Yet Tesla has a minuscule share of the
global auto market, and electric car competition is starting to
heat up. To justify the price tag on the stock, Tesla should be
blowing past its own forecasts, not just meeting them.
What's more, what little profit Tesla makes is heavily flattered
by sales of regulatory credits to help rivals meet emissions
mandates. While the fourth-quarter tally won't be revealed until
Tesla announces full financial results, Tesla has booked $1.3
billion in such sales over the four quarters before that, which
carry a 100% profit margin. That profit source may wither as more
electric competition from legacy auto makers comes online, which
could mean fewer buyers for the credits.
These concerns don't trouble shareholders who are sitting on
huge gains. But recent history does offer a warning: Tesla's market
value has been cut in half twice, in two episodes since 2018. If
that were to happen, shares would still be valued at about 700
times trailing earnings. Auto industry leaders have historically
been lucky to eke out a valuation of 10 times earnings.
Mr. Musk wisely decided to sell $10 billion in stock last year
amid the furious rally. For average investors, it is likely a good
idea to follow his lead.
Write to Charley Grant at charles.grant@wsj.com
(END) Dow Jones Newswires
January 02, 2021 16:31 ET (21:31 GMT)
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