Tesla Consecutive Profit Fails To Dispel Investor Doubts.
“Within the industry we think only Tesla will, for some time, experience incremental growth in revenue and earnings”
Tesla Inc may have reported a 2nd consecutive quarterly profit, but investors were worrying about longer term threats to the business from competition cranking up in Europe and possible hurdles from internal shenanigans.
Tesla reported a net profit of $139.5 million in 2018’s 4th quarter, compared with a loss of $675 million in the same period last year and the 3rd quarter’s profit of $311.5. Sales more than doubled to $6.3 billion in the final three months from 2017’s final quarter.
Investment researcher Evercore ISI was a bit hesitant about Tesla’s prospects as production of the Model 3 accelerates, but with the inevitable prospect that the higher the volume, the lower the price will be as the company drives down to the $35,000 version. Offsetting this drain on Model 3 profitability, sales in Europe which start this month are likely to provide top margins.
“Investors should stay on the side-line to see how maturing Model S and Model X, and Model 3 mix dilution will play out. We also fear that increasing supply of more competitive EV (electric vehicle) product from peers will shape the industry,” Evercore ISI analyst Arndt Ellinghorst said.
Volkswagen is investing big money – $30 billion over the next five years – in its electric car strategy. This is based on a new dedicated electric car engineering design which will provide the basics for a range of cars across all its brands from Skoda to Audi and Porsche. VW has the ambition that by 2025, 25% of its sales around the world will be battery-electric.
Tesla CEO Elon Musk said he expects a profit in all quarters of 2019. He spooked investors though with news chief finance officer Deepak Ahuja had resigned.
Investment researcher Jefferies was reassured by Tesla’s latest financial report, and reckoned it might be alone for some time as a major manufacturer increasing sales and profits.
“In our view, Q4 confirmed industrial and service issues are coming under control. Growth pains and demand strength will likely remain a concern as Tesla works toward the $35,000 price point. Within the industry we think only Tesla will, for some time, experience incremental growth in revenue and earnings,” Jefferies analyst Philippe Houchois said.
German investment bank Nord LB pointed to Tesla’s weaknesses, but still recommend the shares to investors.
“Although Tesla was able to significantly increase vehicle deliveries thanks to the Model 3, it still has to prove that it can make sustainable money, and that the vehicles are of high quality,” Nord LB analyst Frank Schwope said.
This will be crucial year for Tesla.
“In 2019, it could be decided whether the Tesla business model works and it can make profits in the medium term, or whether it needs fresh money or a partner. We do not expect the whole year to be profitable until 2020,” Schwope said.
Schwope recommended investors buy the shares.
Investment bank Morgan Stanley described Tesla’s outlook for 2019 as a mixed bag, with lower than expected unit sales, a target for improved margins, restructuring-led savings, and lower capital spending.
The jury is still out on Tesla’s prospects.
“We believe 4Q results and the 2019 outlook give something for bulls and bears to exercise their imaginations. We don’t expect consensus expectations to change significantly and don’t see how the core narratives around either the bull case or bear case are significantly altered. We continue to see Tesla as a stock that may be fundamentally overvalued and potentially strategically undervalued,” Morgan Stanley analyst Adam Jonas said.
Jonas described the stock value as fair. Tesla stock closed Thursday at $307. After the results Wednesday the stock dived nearly 5% to just over $293.