Tesla is racking up another record year ‘and another loss’

Three months ago, Tesla Inc. notched up a $9 billion gain in market capitalisation in the immediate aftermath of reporting a $143 million quarterly profit. On January 29, it reaped $12 billion on $105 million. Don’t forget the $50 billion it racked up in between those dates, of course.
Tesla’s market cap has more than doubled to more than $100 billion since reporting that surprise profit for the third quarter. Besides that boost to confidence, the company also managed to meet low end of delivery guidance for fourth quarter, started producing vehicles at its new plant in China, unveiled the Cybertruck and began teasing out details of a planned factory in Germany. The latest quarterly profit and $1 billion of free cash flow for fourth quarter have evidently kept momentum going.
As with the previous quarter, the dissonance between the mouse-sized number at the bottom line and the elephantine market reaction is deafening, especially given the stock-price surge during the intervening period. Consider, for example, that since Tesla reported full-year results for 2018 a year ago, its market cap increased by $51 billion. In the meantime, Tesla’s annual vehicle sales increased by 50%, revenue increased by 14% — and GAAP net losses shrank only a little, from $976 million to $862 million.
Indeed, just looking at the fourth quarter, vehicle deliveries and energy storage deployments hit records. Yet revenue growth was just 2.2%, year over year, and net income fell 25%. It’s worth noting that the $105 million of earnings was more than accounted for by the $133 million of regulatory credits sold in the quarter. As for the $1 billion of free cash flow Tesla reported, more than half is accounted for by those credits, a big working capital swing and $204 million of “other” cash from operations that await some 10K-filing details.
As ever, Tesla bulls are less focused on small earnings and the sharp slowdown in growth, and more on the promise of what comes next. From that perspective, tiny net profits on record deliveries represent progress rather than dissonance.
Tesla said it would exceed 500,000 vehicle deliveries this year, including the new Model Y, and boost energy-product deployments by at least 50%. Yet Tesla continues to caveat its expectations of positive free cash flow and GAAP net incomes with the “temporary exceptions” caused by the launch and ramp-up of new products. The current quarter got additional caveats on the earnings call, centered on seasonal effects and, of course, coronavirus-related impacts.
As of January 29, the consensus forecast has Tesla flipping from a net loss of almost $5 a share last year to a profit of almost $2.40 in 2020 and then growing at more than 100%, compounded, through 2023. Looking out 10 years, I wondered what sort of earnings Tesla would need in 2029 to justify its stock price, assuming its terminal value in that year accounted for half the current market cap. At a 10% cost of capital, it works out to just over $200 per share — or an 86-fold increase versus 2020’s (forecast) earnings.
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CEO Elon Musk summed this all up near the start of Wednesday evening’s call with the question, “Where will we be in 10 years?” Its rhetorical power can be seen in the way investors reset the clock as each set of full-year results passes by.

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Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News