This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses, and will be updated. It was originally published on April 15.
Tesla Inc. is benefiting from hopes that it is nimbler than its Detroit peers to weather the economic destruction ignited by the novel coronavirus.
Tesla TSLA, +2.76% shares have been on a tear in recent sessions, boosted by recent Wall Street upgrades even as the pandemic snuffs out near-term demand for vehicles and other big-ticket items. Investors have focused on still-healthy first-quarter vehicle deliveries, Tesla’s proxy for sales, and the announcement that production of the Model Y, a compact SUV, started in January and that the first few vehicles were delivered last month, ahead of schedule.
Business in the age of COVID-19: Read profiles of how other large companies will be affected by the coronavirus
They also seem heartened that the company tapped capital markets and cushioned its balance sheet at a crucial time — fresh from reporting fourth-quarter GAAP and adjusted profit well above Wall Street expectations and just as the first few known U.S. cases of COVID-19 surfaced in February.
Moreover, the Street has kept the faith on the long-term growth trend toward electric vehicles, and Tesla is seen by many as the clear leader in terms of EV and battery technology. Analysts at Goldman Sachs said that they expect EV market penetration to increase from 2% last year to nearly 15% by 2030 even amid lower gas prices due to the ongoing crude-oil supply glut and lower demand.
There has been no word from Tesla about the effects of the COVID-19 pandemic since the company shut down much of its production in late March. Investors will want to know how Model Y production and sales have been affected by factory stoppages and how Chief Executive Elon Musk believes the rest of the year will play out.
Tesla did not rescind its guidance for the year of 500,000-plus deliveries in its first-quarter deliveries report. The company plans to report full first-quarter earnings on April 29.
What the numbers are saying
Revenue: Analysts polled by FactSet estimate Tesla to report $6.16 billion in first-quarter sales, down from $6.6 billion expected in January. For the full year, the mid-April consensus outlook calls for $30.11 billion in 2020 sales, down from expectations of $32 billion in February.
Earnings: Analysts surveyed by FactSet expect Tesla to post a loss of 25 cents a share for the quarter; in January, the analysts were calling for adjusted per-share earnings of 93 cents. Tesla reported adjusted profits in the two previous quarters. Investors are still expecting Tesla to post a profit this year, to the tune of $3.61 a share, but were more optimistic on the company’s 2020 prospects in late February, when the per-share expectation was around $8.60 a share.
Stock movement: Tesla has handily outperformed the S&P 500 index SPX, +1.39% and the Dow Jones Industrial Average DJIA, +1.10%. So far this year, the stock is up more than 80%, versus losses of 2% and 10% for the S&P and the Dow. The stock gained 25% in the January-to-March quarter, versus a loss of 20% for the S&P and 23% for the Dow. Tesla is also outperforming its Detroit peers; shares of General Motors Co GM, +1.99% and Ford Motor Co. F, -0.40% have fallen 41% and 46% this year, respectively.
What the company is saying
Liquidity: The company had $6.3 billion in cash at the end of 2019 and before its $2.3 billion capital raise in February.
That “is sufficient to successfully navigate an extended period of uncertainty,” Tesla said in March. At the end of the fourth quarter, it had available credit lines worth about $3 billion, it said, including working-capital lines for all regions as well as financing for the expansion of its Shanghai factory.
Ford has said it would report a first-quarter loss as well as lower sales, but Tesla and GM have not provided preliminary quarterly numbers. Tesla said it will post first-quarter results after the market close on April 29.
Unit sales: Tesla surprised markets earlier this month when it released first-quarter production and delivery data close to the FactSet consensus and even above the expectations of many analysts tracking the company. But also to the surprise of many, it didn’t reiterate or tweak its 2020 target to deliver more than 500,000 vehicles. Tesla announced temporary factory closures last month.
What analysts are saying
• Tesla is “the clear market leader in EVs in terms of battery range and market share (and we expect it to maintain a strong competitive position in the EV market long-term). While we expect the current industry downturn and the shutdown of Tesla’s Fremont factory due to COVID-19 to weigh on 2020 results, we’d note that even using a $2 per gallon gas price assumption, we believe that the total cost of ownership (TCO) in the premium car market between a Model 3 and an internal combustion engine car is comparable, and Tesla’s cars offer strong performance (e.g., 0-60 acceleration) and safety (5-star safety ratings from NHTSA) features. We expect the TCO of EVs to continue to improve over time leading to significant long-term EV growth.” — Goldman Sachs analysts, who initiated their coverage of Tesla stock at a buy rating with a $864 price target.
• “Encouragingly, we do not expect Tesla to face any liquidity concerns from this crisis, partly thanks to its $2.3B capital raise in February.” — Toni Sacconaghi of Bernstein, who kept his rating on Tesla shares at the equivalent of hold with a $730 price target. The auto maker is unlikely to meet its sales goals for the year and its 2020 revenue may drop by about one fifth, but it has enough cash to survive the economic destruction wrought by the coronavirus pandemic, he said. Bernstein cut its 2020 Tesla deliveries estimate by 22% to 414,000 vehicles.
• Tesla has “more edge” in the transition to electric vehicles, and the “coronavirus disruption will make it more difficult for legacy auto makers to balance the long-term shift to EV in the face of near-term cycle disruption,” — Dan Levy of Credit Suisse, who upgraded his rating on Tesla shares to the equivalent of hold with a $580 price target. Despite the headwinds from the pandemic and near-term weakness to sales of electric vehicles, “the longer-term commitment to electrification will remain intact,” he said.
• Tesla is a “trailblazer” in the electric vehicle market and could be successful as EV demand increases over time, but challenges include ongoing and future production challenges. — John Murphy of BofA Securities. Other hurdles it faces are continued losses and cash burn from low production and deliveries, higher costs, and new facility construction; and the prospect of new competition and technology and model obsolescence, the analyst said. BofA downgraded Tesla to its equivalent of sell.
• There’s “a chance a recession helps (Tesla) extend its EV advantage over other OEMs, who may be forced to delay/halt” their electrification plans. — Ben Kallo of Baird Equity Research. A working capital build in the first quarter could be a drag on cash flow, but Tesla’s balance sheet is strong following the capital raise. Kallo has the equivalent of hold on Tesla shares with a price target of $535.
Of the 33 Tesla analysts who are polled by FactSet, eight rate Tesla stock a buy and 14 rate it a hold, with the remaining 11 rating it a sell. On average, the price target on the stock is $508.92, implying a downside around 30%.