Tesla Shares End Lower After Latest Results

Tesla sold a record $428 million in regulatory tax credits, used to encourage automakers to produce low-emissions vehicles, to help boost its second quarter profit and pave its entry path into the S&P 500.

Tesla Inc.  (TSLA) - Get Report shares ended lower Thursday after it eked out a modest quarterly profit, helped in part by the sale of government emissions credits, that likely paves a path for the clean-energy carmaker to enter the S&P 500.

Tesla said GAAP earnings for the three months ending in June were pegged at 50 cents per share, compared to a loss of $2.31 per share over the same period last year, on revenues of $6.04 billion. The quarterly profit, Tesla's fourth in succession, clears one of the final -- although not automatic -- hurdles for the company to be included on the S&P 500 benchmark. Tesla also confirmed its full-year vehicle delivery target of 500,000, despite a first half tally of 179,050 units.

The quarterly profit beat, however, was driven in part by a surge in sales of Tesla's regulatory credits, which are issued by the U.S. government as an incentive to produce cars that emit zero carbon emissions. Tesla, which has averaged $183 million in credit sales to rival automakers over each of the previous four quarters, sold a record $428 million worth of credits in the March to June period. 

The boost helped offset a 32% year-on-year decline in Tesla's free-cash flow, which was in large part linked to its expansion of production facilities in Shanghai and Berlin, and relatively flat automotive revenues.

Tesla also indicated that cash flow would be tested in the near-term by plans to build a fourth 'gigafactory' outside of Austin, Texas, that will focus on the company's newly-designed cybertruck as well as Model 3 and Model Y sedan deliveries for the eastern U.S. market.

"Now at the same time, I want to say, we will continue to grow in California. But we expect California to do Model S and X for worldwide consumption and 3 and Y for the western half of North America," CEO Elon Musk told investors on a conference call late Wednesday. "And then we think probably also the Tesla Roadster, a future program, would also make sense in California."

"So I think this is a nice split between Texas and California. And just to emphasize, we'll continue to grow in California, but we'll be creating a massive factory and Cybertruck and Semi programs in Texas," he added.

Tesla shares ended off 5%, at $1,513.07 after starting the day up more than 3%. 

Tesla, which assumed the mantle of the world's most-valuable carmaker last month despite its modest -- less than 1% -- contribution to total global sales, will sell, at most, 500,00 cars this year. Ford Motor Co.  (F) - Get Report, which has a market value that is ten times less, will likely shift 2.2 million vehicles and Toyota Motor Co.  (TM) - Get Report, with a market value of $205 billion, will sell 10.7 million.

Tesla, in fact, added nearly twice the value of Ford and General Motors GM combined to its own stock price this month alone, with a 50% gain that's tacked some $90 billion onto its market cap. 

Should Tesla gain entry into the S&P 500, its market value of around $305 billion would sit just below that of Procter & Gamble  (PG) - Get Report and Mastercard  (MA) - Get Report, placing it just outside the benchmark's top ten, comprising around 1.15% of the benchmark's $25.24 trillion total market capitalization. 

"Despite lofty expectations embedded in Tesla stock into 2Q EPS, we believe the bar was cleared with a solid EPS beat," said Credit Suisse analysts Dan Levy, who carries a neutral on the stock with a $1,400 price target. "While we’d argue a heavy dose of reg credits reduces the quality of the beat vs. the headline, it was nevertheless a solid result."

"More importantly, the growth narrative remains intact – crucial, given the market is leaning heavily on growth and momentum," he added. "And while the valuation remains elevated, and any sort of a materially negative datapoint could lead to a correction, we ultimately believe there are enough positive catalysts ahead to maintain longer term interest in the stock."