Weathering the storm: Tesla Q1 2020 Earning
Tesla stock is one of the most followed stocks in the stock market right now and investors all around the world are looking at investing in Tesla stock in 2020. Despite the stock market crash, Tesla stock has held up incredibly well and trading near its all-time highs. But what does Tesla’s recent earnings report, Tesla’s business model and its other businesses tell us? Tesla is neither a tech company nor a car company: it’s the GE of the future. We provide a few thoughts on issues that may have been missed by the mainstream analysis.
Elon Musk’s Tweets
Tesla released its Q1 earnings almost two weeks ago. Since then it seems like a million things happened in the world of Tesla. But one thing is for sure, not even a pandemic can slow down the amount of news coming from Tesla. Perhaps because much of that news is in part generated based on news from Elon Musk’s Twitter account.
Musk’s recent tweets that he’s selling “almost all” of his physical possessions and won’t own a house, as well as his renewed calls for opening the economy, sent the carmaker’s shares to fall 10% to close at $701.32. Tesla’s stock is still up 68% for the year, an advance that’s put Elon Musk in position to meet the final performance threshold he needs to receive stock options that would yield a windfall of about $730 million.
Many analysts were surprised by Tesla’s earnings in the face of Covid-19. While COVID-19 significantly impacted Chinese manufacturing, since manufacturing had just begun there, it was not surprising that the pandemic would materially affect things. Conversely, the Fremont factory closed down less than two weeks from the end of the quarter, greatly mitigating its Q1 impact.
Tesla’s business model
US deliveries would have been impacted during those final two weeks, but the Tesla sales model is so different from that of other automakers. Unlike the traditional dealership model, you don’t have to do anything in person at a Tesla store, and it would have been surprising if there was a huge impact on sales this quarter. This allowed Tesla to eke out a small profit for the quarter.
Many analysts drastically lowered their expectations due to the traditional seasonality of the business, the first quarter being when production halted, and just that the call happened when the world was seemingly shut down. But those who understand the Tesla business model expected a solid quarter, which is exactly what was delivered.
While it’s pretty clear that Tesla didn’t expect this shutdown and doesn’t welcome it, the company is set up to weather the storm far better than other automakers thanks to factors that include:
- Tesla’s recent capital raise.
- Much lower rates of leasing than other automakers, meaning they don’t have anything to buy back right now. (Tesla’s lease rate was the highest it’s ever been in Q1 2020, at just 4.9%. The industry averages over 30%.)
- Almost no dependence on rental fleet sales.
- Little excess inventory due to how production is managed — although, this did cause free cash flow to be negative in quarter 1.
- Keeping so much of production in the house — supply chain interruptions will be far less than at other manufacturers.
And this is just the automotive side of the business. Tesla’s energy side gives it the ability to diversify products and customers moving forward.
Tesla’s many Positives
Tesla’s second-quarter would be very interesting. Though it’s challenging to predict the future, companies like Tesla might see a speedy rebound.
There are a lot of positives that Tesla has right now, and this tiny company that less than 8 years ago Mitt Romney declared in a presidential debate as a “loser” is worth more than Volkswagen ($66.1B), GM ($32.7B), Ford ($19.6B), and Fiat Chrysler ($16.6B) combined (Tesla is currently worth $145.8B). Production will begin again, and it’s pretty clear the market is in agreement that Tesla will lead the way into the future.
In reality, Tesla isn’t a car company, and it isn’t a tech company anymore. Tesla is already operating in the auto industry, the energy business, software, autonomous mobility, electric batteries, and residential solar – all which make it a new GE for the 21st century, and it’s just getting started. In the future, Tesla could move into numerous other enterprises, from healthcare to robotics — all industries that should be important and valuable over the next 80 years.
But we just need to be wary of Elon Musk’s tweets and learn how to interpret them as his tweeting remains a hot-button issue. But Elon will always be Elon. For now, he just wants to get the Fremont company back to work. And Twitter is a good platform to channel that protest.