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Stock Analyst Update

Tesla Finishes 2019 With Strong Quarter

Tesla’s fourth-quarter results showed a $105 million profit with GAAP diluted EPS of $0.56, and adjusted basic EPS of $2.14 easily beat the Refinitiv consensus of $1.72.


Tesla’s (TSLA) fourth-quarter results showed a $105 million profit with GAAP diluted EPS of $0.56, and adjusted basic EPS of $2.14 easily beat the Refinitiv consensus of $1.72. The company announced another acceleration in Model Y production timing by saying the production ramp started in January whereas previous guidance was summer 2020. Deliveries will start by end of first quarter and we expect this vehicle to do well because crossovers are the largest segment of U.S. new vehicle sales at about 41% for the industry. The Model Y’s all-wheel drive range is now 315 miles, up from 280, due to engineering improvements. We are not changing our fair value estimate at this time but as always, we will evaluate all modeling assumptions after Tesla files its 10-K. Management introduced 2020 global delivery guidance by saying deliveries “should comfortably exceed 500,000 units” and we are modeling about 566,000. We see potential for our number to go higher because management expects the Fremont plant’s installed capacity to be 500,000 units by mid-2020 and Shanghai’s capacity is already 150,000.

GAAP free cash flow for the quarter increased 11% year over year to $1 billion and we calculate a 34% increase in adjusted free cash flow, after deducting for collateralized lease repayments, to $926 million. On both a GAAP and adjusted basis Tesla has generated positive free cash flow for three straight quarters and for five of the past eight quarters. The company is starting to get scale and generate profits and cash flow to now have $6.3 billion in cash. Cash generation is essential to long-term survival, especially for Tesla due to its over $7.3 billion in recourse debt, though $4.3 billion of that amount is convertible debt that as of now Tesla can retire by issuing stock at maturity. CEO Elon Musk, when asked about issuing equity to reduce debt, said it would be unwise to dilute the company for that reason, which we are okay with as long as cash flow remains comfortably positive.

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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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