Tesla Soars on Strong Results and Guidance: 5 Key Takeaways

The electric car maker beat Q4 estimates, issued a strong 2020 deliveries forecast and again moved up the start of Model Y deliveries.
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Expectations were pretty high for Tesla  (TSLA) - Get Report going into its Q4 report, but the company managed to top them.

On Wednesday afternoon, Elon Musk’s company reported Q4 revenue of $7.38 billion (up 2% annually), GAAP EPS of $0.58 and non-GAAP EPS of $2.14, beating consensus analyst estimates of $6.99 billion, $0.51 and $1.77.

In addition, Tesla said it expects 2020 vehicle deliveries “should comfortably exceed 500,000 units.” That compares with 367,500 2019 deliveries, and is above a consensus for 467,000 deliveries.

As of the time of this article, Tesla’s stock, which was already up 128% from the time of its Q3 report going into its Q4 report, is up 11.8% in after-hours trading to $649.23. Tesla’s market cap is now above $115 billion, and its enterprise value (market cap plus net debt) is around $125 billion.

Here are some notable takeaways from Tesla’s earnings report and call.

1. Tesla Is Moving Up the Start of Model Y Deliveries

Tesla now plans to start deliveries for the relatively inexpensive Model Y crossover by the end of Q1, rather than (as forecast in October) in the summer of 2020. When the Model Y was first unveiled last March, Tesla indicated deliveries would start in the fall of 2020.

Tesla has previously said that it will start producing the Long Range and Performance versions of the Model Y this year, and begin making the less costly Standard Range version next year.

2. Free Cash Flow Was Much Better Than Expected

Q4 free cash flow (FCF) was $1.01 billion, up from $371 million in Q3 and $910 million in the year-ago period, and well above a consensus of $429 million. Helping out: GAAP operating expenses were roughly flat annually at $1.03 billion, and capital spending (though up 27% to $412 million due to Shanghai Gigafactory investments) was also less than expected.

Tesla reiterates that it expects to produce positive quarterly FCF and GAAP net income going forward, “with possible temporary exceptions, particularly around the launch and ramp of new products.” The company ended Q4 with $6.3 billion in cash and $13.4 billion in debt.

3. Tesla Expects Solar and Energy Storage Deployments to Each ‘Grow at Least 50%’ in 2020

The outlook follows a 2019 in which Tesla’s solar deployments continued falling as the company worked to improve its solar business’ cost structure, and in which its energy storage business saw healthy growth amid growing sales of Powerpack and Powerwall systems.

In Q4, Tesla’s solar deployments fell 26% annually to 54 MW, while its energy storage deployments (can be a little lumpy based on deal timings) grew 136% to 530 MWh.

4. Tesla Is Further Upping its Chinese Model 3 Production

“Due to strong initial customer response in China, our goal is to increase Model 3 capacity even further using existing facilities,” Tesla says in its report, while adding that it has “already broken ground” on the next phase of its Shanghai Gigafactory.

Tesla added that it plans to start Shanghai Model Y production in 2021, and that it’s “planning for [Shanghai] Model Y capacity to be at least equivalent to Model 3 capacity.”

5. Automotive Gross Margin Fell a Bit

With reduced tax credits and the sale of lower-cost Model 3 trims weighing on margins some, Tesla’s GAAP automotive gross margin (GM) fell to 22.5% from 22.8% in Q3 and 24.3% in Q4 2018.

On a non-GAAP basis, which excludes regulatory credits, Tesla’s automotive GM was 20.9%, compared with 20.8% in Q3 and 23.2% in the year-ago period.