Once again, Tesla (NASDAQ:TSLA) stock is rallying after earnings. And, once again, coverage of the report is focusing on chief executive officer Elon Musk.
Musk had another, shall we say, interesting conference call. His commentary included two expletives and an intense criticism of ‘stay at home’ measures as “fascist.”
For investors, however, stray remarks from the company’s CEO simply don’t matter all that much. And the headlines miss the real story from earnings: Tesla keeps rolling on. Its leadership in electric vehicles at this point is self-evident. Its progress toward true autonomous vehicles continues.
And while the response to the novel coronavirus is pressuring near-term results for the automaker, it also may have a long-term benefit. As rivals simply focus on getting by, Tesla is staying aggressive. That in turn suggests Tesla’s lead in key segments will only widen, which means TSLA stock should move toward all-time highs.
Solid Earnings
It’s difficult to see Tesla earnings as anything less than positive. Fundamentally, the quarter ticks off a lot of boxes and contradicts many of the bearish arguments aimed at the stock.
Deliveries rose an impressive 40% year-over-year, to 88,496 units. Obviously, the Model 3 drove nearly all of that growth. But the higher-priced Model S and Model X lines contributed modestly as well. Bears had argued that S and X sales would plunge after the release of the 3. That hasn’t yet happened.
Margins impressed as well. Gross profit, in dollars, more than doubled year-over-year. In the automotive segment, gross margin cleared 25% — a key level.
This, too, dispels a bearish argument that Tesla wouldn’t be profitable with the lower-priced Model 3 line. The 3 accounted for 86% of deliveries in the quarter. Yet Tesla posted gross margins that would be the envy of traditional automakers like Ford (NYSE:F) and General Motors (NYSE:GM).
And while those companies were seeing weak earnings even before this crisis, Tesla’s profits continue to grow. Adjusted earnings per share of $1.24 continue the company’s move into profitability.
Cash flow was negative, but due almost solely to inventory build. And Tesla closed the quarter with over $8 billion in cash. That’s more than enough to get the company through a potential short-term dip in demand — and answers another bearish concern that the company would need to raise more capital just to survive.
The Story Behind TSLA Stock
Of course, TSLA stock is about much more than a single quarter. (That should be true for all stocks, but it’s especially true here.) The long-term bull case for Tesla is based on its growing lineup of electric vehicles and its head start in self-driving cars.
The quarter seems to strongly support the bull case. Production of the Model Y, unveiled last year, began in the first quarter. The ramp at the Gigafactory in Shanghai is on schedule.
The launch of the Tesla Semi has been pushed back a year, but that’s not a surprise given the external environment. If anything, the delay will allow Tesla to fine-tune that product before release. Tesla already has some 2,000 orders for the product. Customers already include Anheuser-Busch InBev (NYSE:BUD) and PepsiCo (NASDAQ:PEP).
Tesla is taking another step toward self-driving cars as well. Stop sign and traffic light recognition was enabled for the wider public.
With the exception of the Semi delay, Tesla is delivering on its promises. And the numbers show it’s delivering on its potential, too. The broader case for TSLA stock is based on the idea that the company can and will lead the automotive industry for decades to come. Q1 supports that case.
Look Around
This current crisis has highlighted — and amplified — the relative position of major companies heading into 2020. We’ve seen companies that clearly have been forced to react to short-term disruption by shrinking their businesses and slashing their costs.
Retailers that were struggling to begin with are furloughing employees. Former titans like Alcoa (NYSE:AA) and General Electric (NYSE:GE) seem like they’re hanging on for dear life.
But stronger companies that lead their industries can get aggressive. As weaker rivals struggle, their balance sheets and pricing power provide even greater advantages. Alibaba (NYSE:BABA) is a good example, as it invests $28 billion to cement its cloud dominance.
Tesla has a similar opportunity. Traditional automakers are facing significant plunges in short-term demand, which is going to require caution across their businesses. And so a company like General Motors may well have to pull back on its aggressive plans to compete in electric and autonomous vehicles.
Tesla, meanwhile, is going full bore. As Musk put it on the earnings call, “We’re absolutely pedal to the metal on new products and expanding the company.”
The hopes that legacy automakers could catch up to Tesla’s innovation seemed thin to begin with. They’re even dimmer now. Tesla is leading. Nearly all of its rivals are simply reacting.
That’s a key edge for the company. And it’s a key part of the bull case for TSLA stock. No, the stock is not cheap — but it shouldn’t be. Q1 shows why that is and why Tesla stock should keep gaining to all-time highs of $969 and beyond.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
