Stock of the week - Tesla (28.01.2021)

• Tesla reported Q4 earnings

• Miss on earnings, beat on revenue

• Operating margin dips on lower car prices

• Ambitious expectations for 2021

• Stock dropped in after-hours trading

Tesla (TSLA.US) released its Q4 earnings report yesterday after the close of the Wall Street session. Famous electric vehicle carmaker disappointed when it comes to earnings in spite of record deliveries made in 2020. Let's take a closer look at recent results of the company.

Results

Tesla reported that it has generated sales of $10.744 billion in the final quarter of 2020, slightly above median estimate pointing to $10.377 billion revenue. Q4 revenue increased 46% year-over-year. However, the company has missed when it comes to net income as adjusted profit of $903 million was over 20% lower than the market had expected. Result has translated into adjusted earnings per share of $0.80 compared to expected $1.026. EBITDA came in at $1.85 billion, compared to $2.156 billion forecast. Nevertheless, 2020 was the first year when Tesla has managed to generate full-year profit with 2020 net income coming in at $2.455 billion.

Price cuts depress operating margin

Tesla has reported mixed margins for the final quarter of 2020. While gross margin increased from 21% in Q4 2019 to 24.1% in Q4 2020, operating margin has dropped from 9.2% to 5.4%. Tesla said that price cuts in China are to blame and that the average price of its cars was 11% year-over-year lower in Q4 2020. Meanwhile, average car prices in the United States increased 3.1% last year. Tesla seems to be sacrificing profitability for scale of operations and while this is a good strategy in the short-run, it may cause some concerns if the trend continues in the future quarters. Shares of Tesla are very expensive and low profitability may discourage investors.

Guidance for 2021 and market reaction

Tesla delivered 499,550 vehicles in 2020, just slightly below goal set at 500,000. The company did not provide a specific target for 2021 but hinted that it expects growth to be higher than 50% achieved in 2020. This would mean delivering over 750,000 vehicles in 2021. Goal looks ambitious but given that the company's new factory in Berlin is expected to begin operating in mid-2021, it could be met. Nevertheless, the market's reaction to earnings was mixed - share price dropped to $800 in after-hours trading. Stock managed to recoup some losses but is still expected to open 4% below yesterday's closing price.

Share price of Tesla (TSLA.US) slipped yesterday and distanced further away from the all-time high at $900. Stock is expected to open lower following earnings release - current premarket quotes point to $830 area. This would mean opening below the support zone at $860 and an upward trendline. Should it be so, the support level to watch can be found at $819, marked by local low from January 15 and the lower limit of the Overbalance structure. Source: xStation5