Updated from Thursday, Oct. 24
NEW YORK (TheStreet) -- Tesla (TSLA) - Get Tesla Inc. Report could see decreasing profitability if its zero-emission credits are limited by the California Air Resources Board (CARB). The government body met in Sacramento on Thursday and will regroup on Friday to discuss Tesla's incentive eligibility.
Tesla currently receives seven credits for every Model S model produced. This could soon be cut to four, according to Bloomberg's Cory Johnson, on the issue of whether the battery pack can be easily removed for fast refueling.
Credits are currently a substantial portion of the company's revenue. In 2012, for example, of the $385.7 million in revenue, around $119 million was generated from CARB credits, said Johnson.
"Tesla, as always, is supportive of anything that will enhance or strengthen zero-emissions mandates," said Diarmuid O'Connell, vice president of Business Development, on the meeting.
CARB also announced governors from eight states -- California, Connecticut, Maryland, Massachusetts, New York, Oregon, Rhode Island and Vermont -- had committed to an initiative to have 3.3 million zero-emission vehicles in use by 2025.
"We applaud the effort of the California Air Resources Board for their leadership and the individual states that have signed onto this initiative," said O'Connell.
Shares closed 5.3% higher to $173.15. The stock was rising 0.97% in premarket trading on Friday.
TheStreet Ratings team rates Tesla Motors Inc as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about its recommendation:
"We rate Tesla Motors Inc (TSLA) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The gross profit margin for Tesla Motors Inc is currently lower than what is desirable, coming in at 30.28%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -7.52% is significantly below that of the industry average.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Automobiles industry and the overall market, Tesla Motors Inc's return on equity significantly trails that of both the industry average and the S&P 500.
- TESLA MOTORS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Tesla Motors Inc reported poor results of -$3.70 a share vs. -$2.52 a share in the prior year. This year, the market expects an improvement in earnings (59 cents a share vs. -$3.70 a share).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Automobiles industry. The net income increased by 71.1% when compared to the same quarter one year prior, rising from -$105.6 million to -$30.5 million.
- This stock has increased by 534.30% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in TSLA do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
- You can view the full analysis from the report here:TSLA Ratings Report