Tesla's Q3 Earnings Report Shows Strong Fundamentals

Rob Maurer

Tesla today reported earnings for the third quarter of 2020, with results generally surpassing Wall Street's expectations. TSLA stock finished after-market trading up 3.2% on the news.

The company reported a top-line beat with total revenue of $8.8B compared to the FactSet consensus of $8.3B. On the bottom-line, Tesla's non-GAAP earnings per share (EPS) were $0.76, 38% ahead of the $0.55 FactSet consensus. However, Tesla did miss analyst expectations on GAAP earnings per share, posting $0.27 EPS compared to the $0.36 FactSet consensus estimate.

The variance between non-GAAP and GAAP EPS is entirely attributable to stock-based compensation, which rose 56% from Q2 to $543M. Tesla said $300M of that total was due to Elon Musk's compensation plan. This was pointed out as a key area to be aware of in Tesla Daily's earnings preview. With Tesla recognizing significant portions of the compensation plan in 2020, these expenses may decline in future quarters, improving Tesla's GAAP results.

Another area of focus in the earnings preview was Tesla's automotive gross margin excluding regulatory credit sales (auto GM-ex). Tesla delivered in spades on this metric, posting auto GM-ex of 23.7% on the quarter, a 500 basis point improvement over the 18.7% posted in Q2 and a 370 basis point improvement from Q1's 20.0%. The strong margins led to all-time high operating leverage for the company, despite the drag caused by higher stock-based compensation. Tesla posted an operating income of more than $800M in the quarter and a 9.2% operating margin.

The margin results bode well for Tesla's business as they continue to ramp volume. Tesla is targeting deliveries of more than 180,000 vehicles in Q4, a 30% increase from Q3's all-time high. The additional volume should continue to improve margins or allow Tesla the opportunity to significantly lower the pricing on their products.

A summary of Tesla's results compared to expectations can be found below, and the included video contains a thorough breakdown of Tesla's financial results.

Screen Shot 2020-10-21 at 10.00.13 PM

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Disclosure: Rob Maurer is long TSLA stock and derivatives.