Tesla drops the balloon cover: here’s how to play it now
Holy Toledo, Batman! Tesla (TSLA), in case you haven’t heard, released the company’s first quarter financial results on Wednesday evening. To put it mildly, CEO Elon Musk and company have knocked the lid off the ball. Before we start, a little warning…
I’ve run out of TSLA since this morning. A profession, not a position of conviction. When I’m asked or intend to write my opinion on a specific title, from that point on, I’m frozen in time. If I’m long, short, or flat, that’s exactly how I should stand until my article is published (becomes public information). This often puts me at a disadvantage in the short term, as it does today. Not the end of the world. I won’t let a small short-term trading position sway my view.
For the company’s first quarter, Tesla posted adjusted EPS of $3.22 (GAAP EPS of $2.86), which beat expectations by almost a dollar. The company generated quarterly revenue of $18.76 billion. That number was good for 80.6% year-over-year growth and beat Wall Street by about $920 million. Auto revenue soared 87% to $16.86 billion, of which regulatory credits accounted for $679 million. The real story was in the expansion of the margin. Tesla produced an automotive gross margin of 32.9%, compared to 26.5% in the prior year, a total GAAP gross margin of 29.1%, compared to 21.3%, and an adjusted EBITDA margin of 26.8 %, against 17.7%.
Net cash from operating activities increased 143% year over year to $3.995 billion. This generated free cash flow of $2.228 billion, up 660% from $293 million for the period a year ago.
Tesla produced 305,407 vehicles for the quarter, of which 291,189 were Model 3s and Ys. The rest were Model S and Xs. That total number was enough for 69% year-over-year growth. As we’ve known for three weeks, Tesla delivered 310,048 vehicles in the three-month period, up 68% from a year earlier. The number of vehicle rentals for the first quarter ended at 128,402, up 55%. There are now 3,724 Supercharger stations (up 38%) and 33,657 Supercharger connectors (up 37%).
In terms of capacity, the plant in Austin, Texas, has started delivering Model Ys, but remains in the early ramp-up period, as does the plant in Berlin, Germany, which comes to start production in March. California remains in normal production with capacity for 500,000 Model 3s and Ys and 100,000 Model S and Xs. What’s amazing, I think, is that Tesla produced a record quarter despite the shutdowns in Shanghai, where is the Chinese factory of Tesla. This facility, which has worked jerkily this spring, is capable of producing more than 450,000 Model 3s and Ys.
The company still expects to achieve an average annual growth of 50% in vehicle deliveries. This growth rate depends on the capacity and efficiency of the company’s operations and equipment as well as the stability of the supply chain, which is and may continue to be an issue. The press release states… “Our own factories have been operating below capacity for several quarters as supply chains have become the primary limiting factor, which is expected to continue through the end of 2022.”
Tesla ended the first quarter with net cash of $18.013 billion and current assets of $29.05 billion. Both numbers were up slightly from a year ago, as well as a quarter ago. Current liabilities reached $21.455 billion, mainly due to the growth of accounts payable which exceeded accounts receivable. This left the company with a current ratio of 1.35, which is healthy. Even if the entry for inventories ($6.691 billion) is removed from current assets, Tesla’s quick ratio is 1.04. This assumes that the company’s inventory is worthless, which it is not, and reinforces the health of that balance sheet in current terms.
Total assets are $66.038 billion, which dwarfs total liabilities less equity by $30.632 billion. I think it’s important to note that Tesla’s entry for “goodwill and net intangible assets” is only $454 million. Not at all abusive. Certainly, the Tesla brand alone is worth much more than that. Tesla easily passes the Sarge balance sheet test.
I can only find six sell-side analysts rated three stars or better by TipRanks who have also given their opinion on Tesla since the release of these results. Of the six, there are four “buy” or “equivalent buy” ratings and two “hold” or “equivalent hold” ratings. The average target price of the six is $1,176.67, with a high of $1,400 (Dan Ives of Wedbush, 5 stars) and a low of $950 (Rod Lache of Wolfe Research, 5 stars).
During the call, Musk indicated that the company has a reasonable chance of increasing production by 60% for 2022. Musk also talked about the Robotaxi which is (for now) expected to go into production in 2024. The Robotaxi will not have a steering wheel or accelerator or brake pedals. Robotaxi will also operate at an extremely low cost per mile. Cybertruck was also mentioned. This vehicle is expected to enter production in 2023.
There are two potential negatives for the stock. One would be for the supply chain of production conditions to deteriorate. Certainly possible given that Austin and Berlin haven’t really stepped up yet, and given that Shanghai has become less reliable than the recent Covid surge in that part of the world. Beijing’s handling of Covid has made it difficult for businesses to operate almost normally in this area. The other would be evaluation. TSLA trades at around 92 times forward earnings. They can reach this valuation, but this market has been volatile and sellers know where to go when the air comes out of the ball.
That said, Tesla has differentiated itself in times of supply shortages, in times of rising inflation, and against all of its competitors…even Ford Motor (F) and General Motors (GM) who have the mass-production expertise that maybe other strictly electric vehicle manufacturers don’t, but still try to develop the electric capability themselves.
Readers will see TSLA, on this morning’s gap…trying to hit the pivot on the exit from a January-April cut with a handle formation and peeling off the 21-day EMA. The stock is clearly not overbought. Relative strength is neutral and the daily MACD is moving in the right direction, but we have yet to see a bullish crossover into positive territory from the 26-day EMA through the 12-day EMA. Heck, the Full Stockastics oscillator is just breaking out of technically “oversold” territory.
If the stock can take and hold that spot, it would open the door to a target price of $1,384. If I was long, I would drag my mental stop to this 21-day ($1,010) line. As for me, I have a little short in the $1040s that I need to fix now. Have a nice day.
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