Tesla, one of the companies with the most impressive stock market performance in 2020, announced its Q3 2020 revenues two days ago. It posted the fifth consecutive profitable quarter – a milestone in the company’s history.
Throughout the years, many have pointed to Tesla as the company that makes no profit while investors keep bidding for its price. To this day, the market valuation of Tesla is incredibly high compared to what one can find on its financial statements. However, at least one part seems to be solved for now – profitability.
Moreover, besides reporting a profit, Tesla showed solid free-cash-flow available to the firm. The position is so big that the company said that it will be enough to fund its Model Y production and to expand production facilities into Germany.
Details of Q3 2020 Earnings
On $8.2 billion in expected revenue, Tesla reported $8.77 billion. Adjusted EPS also exceeded expectations, coming out at $0.76 vs. $0.55 expected.
Just like in the previous quarter, the bulk of Tesla’s profits came from selling emissions credits. For this quarter, it reported $397 million, once again exceeding the net income (GAAP) of $331 million excluding credit sales. This is a big bone for Tesla detractors because if one deducts the credit emissions sales from the net income, Tesla actually lost money since the first quarter of 2019. However, since this is part of the business and generates cash flow, it should be treated accordingly – as a separate, cash-generated part of the businesses that help to finance the ultimate goal.
Sure, at $430/share, Tesla’s valuation makes no sense in the minds of many. It is selling at over 850 times TTM GAAP net income. +850! Another negative is that the accounts receivable (i.e. money it did not receive on cars already delivered) continues to increase since the fourth quarter of 2018, reaching $1.7 billion in the meantime.
Nevertheless, this week’s earnings show a company with “all engines” set to maximum. It focuses all its resources on tremendous expansion and reiterated its goal of delivering half a million cars this year. To achieve this, the company must sell another 181 thousand cars in the fourth quarter.
Considering the shift in consumer behaviour created by the coronavirus crisis (i.e. people increasingly favouring cars over public transportation), the goal does not seem so impossible to reach. For once, Tesla also has the funds to sustain its production and expanding activity, as shown by the strong free-cash-flow to the firm position.