Tesla, Inc.

TSLA Details

A look at 2QFY20 Key Highlights: Tesla, Inc. (NASDAQ: TSLA) is involved in the development, manufacturing, and sale of high-performance fully electric vehicles (EV) and energy generation and storage systems. During the quarter, the company reported non-GAAP earnings per share of $2.18, as compared to pcp loss of $1.12 per share. Automotive revenues for the period stood at $5,179 million, down 4% year over year. Total revenues for the quarter went down by 5% from the prior corresponding period and stood at $6,036 million. In 2QFY20, net income stood at $104 million, as compared to a net loss of $408 million reported in 2QFY19. The company exited the period with cash and cash equivalents of $8.6 billion. Free cash flow during the quarter stood at $418M. Net cash provided by operating activities stood at $964 million during the quarter, with capital expenditure amounting to $546 million, owing to higher investments in Gigafactory Shanghai and Model Y preparations in Fremont.

During the quarter, TSLA recorded delivery and production of 90,891 and 82,272 vehicles, respectively, suggesting a decline of 5% each, on the prior corresponding period. The company reported Model 3/Y production and deliveries of 75,946 and 80,277 units, respectively. The company witnessed an enhanced production rate of Model 3/Y during the quarter.

2QFY20 Key Highlights (Source: Company Reports)

Outlook: The company remains on track to fund its production roadmap with sufficient liquidity, thereby aiding its long-term capacity expansion plans and other expenses. The company expects operating margin to grow over time, eventually reaching industry-leading levels with capacity expansion. For FY20, the company expects vehicle deliveries to be more than 500,000 units. The company also remains on track to build capacity for Model Y at Gigafactory Berlin and Gigafactory Shanghai and expects to commence deliveries of these vehicles from both locations in 2021.

TSLA Cuts Model Y Prices:  Recently, the company stated that it intends to slash prices of its Model Y SUV by $3,000. The price cut was on the back of declining demand of auto over weeks due to lockdown that has now begun to ease. Notably, the Model Y will now be sold at $49,990, down ~6% from its earlier price of $52,990, since the beginning of Model Y deliveries in March.

Risk Analysis: The company has been witnessing major production issues with Model Y as the United States was unwilling to buy the battery-electric SUV and in some cases, refusing deliveries of the vehicles. Higher costs and stiff competition from peers also remain potential headwinds, going forward.

Stock Recommendation: The stock of TSLA closed at $1513.07 with a market capitalization of ~$280.6 billion. The stock made a 52-week low and high of $211 and $1794.99 and is currently trading at the upper band of the range. The stock has generated positive returns of ~51.04% and ~114.43% in the last one month and three months, respectively. With the Model 3 sedan being its flagship vehicle, the company has strengthened its foothold as a leader in the EV segment. Debt to equity ratio of the company stood at 1.43x in Jun’20, as compared to the industry median of 0.76x. On the valuation front, the stock is trading at a P/BV multiple of 28.5x as compared to the industry average of 71.1x on TTM (Trailing Twelve Months) basis. Given the recent update, current trading levels and COVID-19 impact, we give a ‘Hold’ recommendation on the stock at the closing price of $1513.07, down 4.98% as on 23 July 2020.

TSLA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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