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Stock Analyst Update

Tesla's Balance Sheet Improves Cash Holdings

Tesla's results were slightly ahead of expectations and we still see shares as overvalued.

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 Tesla (TSLA) reported a fourth quarter net profit of $139.5 million, less than the $311.5 million reported for third quarter, as guided by CEO Elon Musk in a recent 8-K filing announcing a 7% headcount reduction. After factoring in 2019 guidance of less capital expenditure than we were modeling ($2.5 billion versus $4 billion), and guidance of a less than 10% increase in operating expenses, less Model S and X volume in 2019 than we were modeling, and a higher share count, we see no reason to change our fair value estimate. We will revisit our valuation next month after incorporating the 10-K into our model, which could result in a modest increase to our fair value estimate.

Adjusted diluted EPS for the quarter of $1.93 missed consensus of $2.19 while revenue grew 5.9% from third quarter to $7.2 billion, slightly beating consensus. Fourth quarter deliveries more than tripled year over year to 90,966 and also rose 8.6% from third quarter. Compared with third quarter, Model S and X deliveries were about flat so Model 3 led the way and we expect it will continue to do so in 2019. Tesla guides for all vehicles delivered in 2019 of 360,000-400,000 whereas we had been modeling 450,000, but Musk made comments on the call suggesting the company can do better than 400,000. Musk also talked about the pickup truck possibly being unveiled this summer and guessed the standard range Model 3 of about 220 miles will be available mid-2019. Musk wisely constantly stressed that reducing costs and getting the Shanghai Gigafactory up and running this year are critical inputs to selling affordable vehicles at a profit. The China factory is guided to initially make 3,000 Model 3s a week.

We were pleased to see GAAP free cash flow of $909.6 million in the quarter, up from third quarter's $881 million. This cash flow enabled Tesla to finish 2018 with $3.7 billion in cash and we have no concerns about the company paying off its $920 million convertible bonds fully in cash in March.

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David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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