Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng
eResearch | Tesla, Inc. (NASDAQ: TSLA) saw its stock price soar more than 17% after announcing Q3/2019 earnings, as the electric vehicle (“EV”) company: (1) increased profitability through recognition of revenue from EV software feature add-ons, (2) started trial production sooner than planned at its facility in China, (3) and, announced an early launch of its Model Y crossover.
Tesla reported revenues of US$6.3 billion, which was in line with S&P Capital IQ estimates, but the electric car company surprised the market with profits of US$143 million, beating expectations of a US$237.2 million loss, with earnings per share at US$1.86 that was above estimates of US$1.37.
Gross automotive margins increased to 22.8% compared with 18.9% quarter-over-quarter, attributed to improved capital efficiency, but it was lower than 25.8% year-over-year.
Tesla delivered 97,186 EVs, which missed Factset’s estimate target of 99,000, with a 1.8% sales growth quarter-over-quarter compared with a 51% growth in Q2/2019. The EV company has pledged to sell 360,000 to 400,000 vehicles by the end of 2019 and recently announced that it is confident in reaching at least 360,000, but Tesla will be cutting it close as it enters the slow winter season with only 255,561 sales year-to-date.
Earnings were largely supported by the recognition of US$30 million in revenue from the roll out of an autopilot drive-assistance feature for Tesla EV owners, which will allow customers to use their smartphones to call remotely over their vehicles to pick them up. Tesla has been receiving payments for software add-ons such as the autopilot function before updating the EVs, with over US$500 million in deferred revenue still to be recognized.
Last week, Tesla executed earlier than expected in China with approval from the government to start trial production at its Shanghai giga factory. Tesla is expected to produce 1,000 Model 3 EVs a week by the end of this year, which are expected to be priced affordably for Chinese consumers as import taxes are avoided through local manufacturing.
In Europe, the Tesla expects to announce the location of its giga factory where it plans to start manufacturing EVs in 2021.
Tesla also announced an early launch for its Model Y, a crossover electric SUV, which was introduced in March with production plans expedited to next summer.
Volvo’s EV Plans
In other EV news, Swedish automaker, Volvo Cars (OM:VOLV B), has recently announced an increased focus on the EV market with the launch of a modified version of its successful XC40 compact crossover. Volvo expects plug-in hybrids to make up 20% of its revenue next year. Volvo will be using the sub-brand, Recharge, for its plans to generate half of its sales from EVs by 2025.
Dyson Exits the EV Business
Not everyone is excited about the EV market. Dyson, a popular vacuum cleaner and hair dryer manufacturer, who announced two years ago its entrance into the EV competition, recently scrapped its US$2.5 billion EV plans. Dyson instead will be investing the capital into new technologies for batteries, machine learning, and robotics.
EV industry
The EV industry has surged in the past five years as countries around the world implemented various subsidies and policies to promote the purchase of EVs. In the U.S. alone, there were 231,539 EV sales in the first three quarters of 2019, of which more than half were Tesla vehicles.
According to Acumen Research and Consulting, the EV industry is expected to reach US$567.2 billion by 2026 at a CAGR of 25.6%, stimulated by governments pushing towards environmental sustainability and vehicle manufacturers developing more efficient and affordable EVs.
There is still a large amount of vehicles in world that run on fossil fuels, which are eventually going to be turned over for more efficient and environmentally friendly EVs. It will be interesting to see if Tesla can sustainability maintain profits as it starts to roll out various software features and quickly expands in international markets.
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Tesla, Inc. (NASDAQ: TSLA)
- tesla.com
- Headquartered in California, United States, Tesla is an automotive and energy company that specializes in electric vehicles, as well as solar panels through their subsidiary, SolarCity.
- TSLA currently trades at US$297.75 per share with a market capitalization of US$53.3 billion.
AB Volvo (OM:VOLV B)
- volvogroup.com
- Headquartered in Gothenburg, Sweden, AB Volvo manufactures and sells cars, trucks, buses, construction equipment, and marine and industrial engines internationally.
- AB Volvo is currently trading at SEK145.85 with a market cap of SEK296,500.6 million.
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