Morningstar

Tesla Finishes 2019 With Strong Quarter

Tesla’s fourth-quarter results showed a $105 million profit with GAAP diluted EPS of $0.56, and adjusted basic EPS of $2.14 easily beat the Refinitiv consensus of $1.72.

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Tesla Inc
(TSLA)

Tesla’s TSLA fourth-quarter results showed a $105 million profit with GAAP diluted EPS of $0.56, and adjusted basic EPS of $2.14 easily beat the Refinitiv consensus of $1.72. The company announced another acceleration in Model Y production timing by saying the production ramp started in January whereas previous guidance was summer 2020. Deliveries will start by end of first quarter and we expect this vehicle to do well because crossovers are the largest segment of U.S. new vehicle sales at about 41% for the industry. The Model Y’s all-wheel drive range is now 315 miles, up from 280, due to engineering improvements. We are not changing our fair value estimate at this time but as always, we will evaluate all modeling assumptions after Tesla files its 10-K. Management introduced 2020 global delivery guidance by saying deliveries “should comfortably exceed 500,000 units” and we are modeling about 566,000. We see potential for our number to go higher because management expects the Fremont plant’s installed capacity to be 500,000 units by mid-2020 and Shanghai’s capacity is already 150,000.

GAAP free cash flow for the quarter increased 11% year over year to $1 billion and we calculate a 34% increase in adjusted free cash flow, after deducting for collateralized lease repayments, to $926 million. On both a GAAP and adjusted basis Tesla has generated positive free cash flow for three straight quarters and for five of the past eight quarters. The company is starting to get scale and generate profits and cash flow to now have $6.3 billion in cash. Cash generation is essential to long-term survival, especially for Tesla due to its over $7.3 billion in recourse debt, though $4.3 billion of that amount is convertible debt that as of now Tesla can retire by issuing stock at maturity. CEO Elon Musk, when asked about issuing equity to reduce debt, said it would be unwise to dilute the company for that reason, which we are okay with as long as cash flow remains comfortably positive.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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