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Tesla Q1 Earnings Preview: Investors Will Seek Reason For Stock's 100% Jump

Published 04/29/2020, 11:57 AM
Updated 09/02/2020, 02:05 AM
  • Reports Q1 2020 results on Wednesday, April 29, after the market closes
  • Revenue Expectation: $6.03 billion
  • EPS Expectation: $-1.08
  • The time has finally come when the market will find out whether this year's powerful rally in Tesla (NASDAQ:TSLA) shares is actually justified. Defying all odds amid the COVID-19 pandemic, the electric carmaker's stock has shown strong resilience in 2020, rewarding investors who believe in CEO Elon Musk’s ambitious growth plans.

    TSLA Weekly TTM

    Powered by this strong bullish sentiment, Tesla stock has gained more than 80% this year and more than doubled since the March 18 close. That rebound has put Tesla in the elite group of mega cap technology stocks, such as Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX), that emerged unscathed from the steepest market slide on record. The stock fell more than 3% yesterday to finish the session at $769.12.

    But in order to support the overall momentum, Tesla needs to produce a blowout quarter, beating analysts’ expectations.

    In a recent note, Barclays said that it expects Tesla to keep its full-year delivery guidance of 500,000 vehicles the same when it releases its earnings today, despite plant closures due to the pandemic. The company’s Fremont, California production line won’t remain closed for long, Barclays projected. Tesla paused production at the plant in late March after government officials said it was not an essential business.

    Significant Lead Over Competitors

    Recently, Goldman Sachs also recommended buying Tesla. Their note targeted a high of $864. Goldman analyst Mark Delaney wrote that in his view, Tesla has a significant lead over other automakers in making electric cars and is expected to maintain a strong market position.

    Tesla's strong brand, vertical integration and early-mover advantage are critical factors boosting the company, which operates in an industry with generally long development cycles—it takes about two to four years on average to roll out new models.

    Competitors, on the other hand, are struggling to survive in this tough economic environment. Ford (NYSE:F) has already suspended its dividend. And last month it drew $15.4 billion from two credit lines, to help the company weather months of uncertainty over when it can resume manufacturing and selling vehicles. The Detroit automaker may now stockpile even more cash to get through the crisis, according to a report in Bloomberg.

    Investors became more confident about Tesla this month, after the carmaker released a better-than-expected sales report for Q1, raising expectations that the company was in a stronger position to withstand the coronavirus-triggered slowdown.

    Tesla delivered 88,400 vehicles worldwide in the first quarter, down 21% from the last three months of 2019. But the total was still better than analysts’ average estimate for about 78,100.

    Still, Caution Is Warranted

    But the reason bulls rallied behind Tesla this year is worth noting: sentiment on the stock was buoyed when founder and CEO Musk—after years of over-promising and under-delivering—finally proved true to his word. The company beat analyst revenue estimates for Q4 and accelerated the introduction of the new Model Y crossover.

    As well, the completion of its Shanghai factory and the company's success at exceeding its ambitious goal of selling 360,000 vehicles for the year also offered a powerful signal that Tesla could rapidly become a meaningful industry player if it continues to meet its targets.

    Needham analyst Rajvindra Gill believes it would be better to remain cautious on Tesla as demand for cars has largely collapsed in North America and Europe. In a note last month Gill said:

    “In the long-term, we continue to expect margin pressure from declining sales of higher-margin Model S & X vehicles, a lower mix within Model 3, and competitive pressures from other automakers as they launch their electric vehicles over the next few years.”

    Bottom Line

    Tesla’s ongoing momentum certainly shows that the company is in a much better position to weather the current economic slump than other carmakers. The company’s first quarter earnings report today should show whether the current optimism is backed by fundamentals.

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