Clear Hurdle Still Leaves Tesla Stock in Ludicus Mode


A record quarter for Tesla TSLA 1.57%

It seems that it is not as soon as possible.

Tesla announced on Saturday morning that it delivered 180,570 cars worldwide in the fourth quarter, a new company record. This is 500,000 shy of the total in 2020, in line with the company’s recent guidance. The company also said that it would soon start delivering its China-made Model Y crossover vehicle to customers.

Beating the guidance is certainly good news, it hardly represents a huge operational potential that Wall Street should dazzle. For starters, meeting operational forecasts is a regular schedule for most members of the S&P 500, to which Tesla was added last month.

And investors should not forget that chief executive Elon Musk once claimed in 2016 that Tesla would sell one million cars by 2020. Ever since he claimed this, Tesla stock has increased nearly fifteen times. Last year also came and went without the promise of fully autonomous “robotaxis” by Mr. Musk on the streets until the end of 2020.

Currently, the company said that it produced nearly as many cars to customers in the fourth quarter. But back in October, Tesla said it had installed enough production capacity to make 210,000 this quarter, suggesting a rate of capacity utilization this quarter was actually 86% pedestrian.

As a result of last year’s tragic rally, Tesla’s market value is about $ 670 billion. This is $ 1.3 million per car sold last year, and is nearly seven times the combined market values ​​of Ford and General Motors.

Yet Tesla still has a small share of the global auto market, and electric car competition is starting to heat up. To justify the price tag on the stock, Tesla should meet its forecasts, not meet them.

What’s more, Tesla gets little profit, with competitors making huge earnings from the sale of regulatory credits to help them meet the emissions mandate. Although the fourth-quarter tally will not be revealed until Tesla announces full financial results, Tesla has booked $ 1.3 billion in such sales in the four quarters prior to it, taking a 100% profit margin. The source of profit may return in the form of greater electrical competition from legacy auto manufacturers, which may mean fewer buyers for credit.

This concern does not bother shareholders who are sitting on huge profits. But recent history presents a caveat: Tesla’s market price has been cut twice in two episodes since 2018. If that were the case, the shares would still be considered worth around 700 times earnings. Auto industry leaders have historically been fortunate to value earnings 10 times.

Mr. Musk wisely decided to sell $ 10 billion worth of stock last year amid a rally. For average investors, it is a good idea to follow their lead.

Write Charlie Grant at [email protected]

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