Tesla Posts a Profit Which May Lead to S&P500 Inclusion

Tesla TSLA reported profitable second-quarter GAAP results, and adjusted diluted EPS of $2.18 rose significantly from the prior year’s quarterly loss of $1.12. We calculate Tesla had a pretax loss of $278 million excluding $428 million of regulatory credit revenue. This is the fourth straight GAAP profit quarter which means the stock may soon be added to the S&P 500 index, likely leading to further gains for the stock as index funds and active managers wanting to keep pace with the index add the stock. GAAP free cash flow fell 31.9% year over year to $418 million, but we still consider it impressive because the Fremont plant was shutdown from the coronavirus for over a month and capital expenditure more than doubled to $546 million. The resumption of production made the working capital unwind from paying vendors, despite no new revenue coming in, less than management feared on the first-quarter call.

Tesla still hopes to deliver 500,000 vehicles this year which will be hard given first-half deliveries totaled 179,387. We also are worried about California and other states instituting new stay at home orders due to COVID-19 cases surging. Second-quarter deliveries fell 5% year over year to 90,891, with combined Model S & X deliveries down 40% and combined Model 3 and Y up 3%. Tesla said it remains difficult to predict further interruptions and consumer sentiment changes and that achieving the 500,000 target has become more difficult. We are keeping our 2020 deliveries at 400,000 but we are raising our fair value estimate to $751 on the time value of money and better 2020-21 results.

The company confirmed its next gigafactory will be in Austin, Texas and it will make all Cybertrucks and Semi, plus the Model 3 and Ys for the eastern U.S. Fremont will make all S & Xs, the new Roadster, and Western U.S. 3 and Ys. CEO Elon Musk would not comment on the Austin plant’s capacity but given Semi is due next year, we expect Austin to be at least partially complete next year.

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