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Tesla Shares Are Defying Gravity After Earnings

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Tesla  (TSLA)  smashed earnings estimates and the stock popped Wednesday. Investors are fully comfortable with the narrative that demand for Tesla vehicles is unaffected by the pandemic. 

Since June 26 ,the stock had risen 26%, as manufacturing plants opened up and Tesla said it delivered 90,000 vehicles in the quarter, far better than the previously-expected count.

And on earnings Wednesday, Tesla not only beat top-line expectations, but also delivered solid operating leverage, leading to a highly profitable quarter, which only signifies that the future holds more profits to come. 

The stock rose another 6% to $1,697 a share after earnings. 

Here were the results against Wall Street’s expectations: 

  • Deliveries: 90.89K v. 81K (actual: -5 year-over-year)
  • Revenue: $6.03B v. $5.15B (-5%)
  • Gross Margin: 21% v. 17% 
  • Adjusted EBITDA: $1.2B v. $746M 
  • EBITDA Margin: 20% v. 14.5% 
  • Adjusted Earnings Per Share: $2.18 v. 1 cent loss 

The top-line declines were due to plants shutting down for much of Q2, but underlying demand was strong, as plants opened in the second half of the quarter and deliveries and revenue rose quarter-over-quarter. 

Here’s what management said of the results: 

"Our profit improved sequentially due to fundamental operational improvements. Additionally, we experienced costs associated with factory shutdowns, which were offset by actions taken during the quarter to reduce expenses. We believe the progress we made in the first half of this year has positioned us for a successful second half of 2020. Production output of our existing facilities continues to improve to meet demand, and we are adding more capacity. Later this year, we will be building three factories on three continents simultaneously.” Management said the company has “sufficient liquidity” to fund the new plants. 

On guidance, the company said it cannot forecast any results as a surge in viruses theoretically poses the threat of more plant closures or waning consumer demand. While some companies express real caution on results going forward, Tesla is merely making it explicit that the company is not completely insulated from the pandemic. Meanwhile, the results, when plants are open, are speaking for themselves. 

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