High expectations for Tesla, and a long way to go to match rivals' steady profit

Buckle up. Tesla's quarterly report could be another wild ride for investors.

FILE PHOTO: A Tesla supercharger is shown at a charging station in Santa Clarita, California, U.S. October 2, 2019. REUTERS/Mike Blake/File Photo (REUTERS)
FILE PHOTO: A Tesla supercharger is shown at a charging station in Santa Clarita, California, U.S. October 2, 2019. REUTERS/Mike Blake/File Photo

The electric carmaker's stock has more than doubled since Tesla's previous quarterly report on October 23, when it posted a surprise profit that was viewed as a milestone for the company.

Still, a Reuters analysis of Tesla's and other luxury carmakers' operating profit per vehicle - a metric closely watched by auto executives - shows Tesla still has a long way to go before reaching the steady profits of rivals Porsche , BMW and Mercedes-Benz .

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At an average of roughly $17,750 (13,504 pounds) per vehicle, operating profit at luxury carmaker Porsche, for example, has been stable over the past four years. Mercedes' and BMW's profit per vehicle have been closer to $3,000.

At Tesla, on the other hand, operating results fluctuated between a loss of nearly $20,500 per vehicle in the third quarter of 2017 and a profit of nearly $5,000 per vehicle in the third quarter of 2018.

Calculating profits per vehicle allows for better comparison across the auto industry. Reuters selected Porsche, BMW and Mercedes because their cars compete in similar price segments and for a like-minded customer base.

Tesla's rally in recent months has been fuelled by its unexpected third-quarter profit, a production ramp-up at its new factory in China and better-than-expected car deliveries. Tesla's stock was up 1% on Tuesday.

While analysts on average expect Tesla to report another profitable quarter, it would be only the fifth such quarter since 2010. For the December quarter, analysts on average expect Tesla to post revenue down 2.9% to $7.02 billion and adjusted net income of $305 million, or $1.72 per share.

Options traders expect more volatility after Tesla releases its fourth-quarter results late on Wednesday.

As of Tuesday, Tesla options implied an 11% swing for the shares in either direction by Friday. Over the last eight quarters, the stock moved 9.5% on average after Tesla reported results, according to options analytics company Trade Alert.

Porsche last year released its first fully-electric sports car, while Mercedes and BMW have released their own electric vehicle versions. General Motors and Ford Motor are gearing up to launch their own electric vehicles.

While the German carmakers still largely rely on combustion engine-powered cars and are struggling to persuade customers to pay a premium for electric vehicles, they have a century of manufacturing and a well-developed global sales network behind them.

As Musk's nears the first tranche of a record pay package that depends in part on increasing Tesla's market capitalisation, the carmaker's stock remains among the most divisive on Wall Street.

While Tesla’s recent progress has cheered supporters, many investors remain sceptical of the company’s ability to consistently deliver profit and cash flow. As well as repeatedly missing targets in recent years, Musk’s mercurial behaviour has come under scrutiny from financial regulators and shareholders.

Tesla's market capitalisation must be sustained at or above $100 billion for both a one-month and six-month average in order to trigger the vesting of a $346-million tranche of options that are the first part of Musk's record-breaking pay package.

In the past 30 days, short bets against Tesla have decreased by almost $660 million to $14 billion, eclipsing the $12.9 billion worth of short positions against much-larger Apple and making Tesla the most shorted stock on Wall Street, according to S3 Partners, a financial technology and analytics firm.

Nine analysts recommend investors buy the stock, 10 analysts have neutral ratings and 15 analysts recommend selling.

First Published Date: 29 Jan 2020, 10:01 AM IST
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