Tesla is reporting earnings this week — here's why analysts predict the automaker will close in on its first-ever annual profit
Reuters
- Tesla reports third-quarter earnings on Wednesday after the markets close.
- Analysts expect a fifth consecutive profitable quarter for a carmaker that's now the world's most valuable, and that's closing in on its first-ever annual profit.
- Tesla's China business has helped it to rapidly recover from the coronavirus shutdowns that rocked the auto industry earlier this year.
- Tesla's new China factory is the cornerstone of its future growth strategy, as the country is bouncing back from COVID-19 and its auto market could double in size over the next decade.
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Here's a year-over-year doozy for you: when Tesla reported its third-quarter earnings in 2019, it was coming off a significant second-quarter loss and had something to prove. But it posted a profit, and hasn't looked back, commencing a string of profitable quarters being tested this week.
A year ago, instead of being worth $413 billion, as it is now, Tesla was then worth less than $70 billion. And even that level raised eyebrows, as it exceeded peers such as General Motors and Ford.
Tesla isn't that much bigger than it was a year ago. It's not selling that many more vehicles as the year draws to a close. But it is the most valuable automaker on Earth, and if the third quarter is in the black, then the company is just three months away from its first-ever annual profit.
Analysts are expecting a positive quarter, with over $8 billion in revenue, on the back of the record vehicle deliveries Tesla reported for the quarter. The markets appear to have priced in those expectations; although shares are up 190% over the past six months, they've been trading flat for the past week or so.
A beat on expectations could send Tesla stock surging upward, of course. But for now, the markets appear to be preparing themselves for Tesla's fourth quarter and the possibility of that elusive annual profit.
More business than ever for Tesla
At the end of 2020, Tesla has brought a new factory online in China, offsetting its coronavirus-related production delays in the US. And the company has a new factory under construction in Germany, and another planned for Texas. It recently unveiled a new battery-cell design that garnered plaudits from experts, and it dominates the EV market, even as numerous competitors are rolling out vehicles at a wide range of prices.
What little business Tesla did once present to Wall Street was unstable. But these days, there's a lot more business to talk about, and it's verging on predictable.
In fact, Tesla is on the way to posting its best-even year at a time when the traditional industry has been forced to contend with global production shutdowns and awkward restarts, challenges to dealerships from the pandemic, and the beginnings of a shift away from a century of internal-combustion engines.
All about China
The US market is already a well-understood story for Tesla, and European local production in Germany is probably at least a year off, so analysts are likely to concentrate on China, as the country has been recovering robustly from the massive pandemic lockdowns ordered at the beginning of the year.
China is where the industry expects to find most, if not all, of its future growth. The market is already larger than the US, and it could add another 20 million in yearly new-vehicle sales if some of the more bullish pundits are right.
Tesla's ability to sort of reinvent itself with its Shanghai operation is critically important. If the company can shed its "production hell" reputation, then analysts can assume Elon Musk's targets are roughly on point, as they would for any other auto CEO.
Thus far, China's ramp-up has been admirably seamless, save for a relatively short pandemic shutdown when COVID-19 first struck. Tesla got its factory up and running in about a year, half the time it usually takes, and the ownership arrangement is unique: All other Western automakers build vehicles in China through joint ventures, but Tesla entirely owns its Shanghai plant.
So expect a big-time focus on the the world's biggest car market on Wednesday after the bell. Around the edges, there could be some questions about self-driving technologies that haven't yet hit the streets and some chatter about the battery business. But Tesla's future — and its future profits — are all about China.
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