Tesla divides investors as it misses earnings target

Electric vehicle maker’s results dubbed ‘one for the true believers’.

Elon Musk’s Tesla (NASDAQ:TSLA) continues to divide investors after the electric car maker’s landmark results and plans for further rapid expansion were tainted by missed earnings targets.

Analysts at Morgan Stanley described last night’s fourth-quarter update as “one for the true believers”, with a trade-off between the fourth quarter’s large operating miss versus stronger-than-expected cash flows and Tesla’s ‘road map’ for more strong growth.

The shares were being priced 5% lower ahead of the Wall Street opening bell, although this is on a valuation that’s rocketed 750% in the past year to as high as $850 billion (£622.5 billion).

Those arguing that the shares represent irrational market exuberance will point to Tesla now being worth more than Toyota Motor (NYSE:TM), Volkswagen (XETRA:VOW), Hyundai (LSE:HYUD), General Motors (NYSE:GM) and Ford (NYSE:F) put together. The case of the pessimists has been strengthened by last night’s results, with auto margins coming in at 20.7% rather than the Wall Street consensus of 24.2%.

• Spotlight on Tesla and the electric car revolution
• Tesla: is Elon Musk’s vast fortune safe?
• Stockwatch: Tesla challenged by touchscreen woes

The miss was driven by a combination of factors and Tesla will argue that it still significantly increased volumes, profitability and cash generation in highly challenging conditions.

Half a million vehicles were produced and delivered in 2020, while a run of quarterly profits has helped the company to its first annual surplus at $721 million (£525 million).

Tesla also reported progress on its longer-term road map after production of Model 3 in China rose to over 5,000 cars per week and Model Y output started at its Shanghai Gigafactory in December. It also launched Model Y in Fremont, California during the last year.

The company said: “While 2020 was a critical year for Tesla, we believe that 2021 will be even more important.”

The outlook statement was shorter on detail than in previous years, which Tesla said would allow teams to keep their focus on achieving longer-term goals. However, it added: “We are planning to grow our manufacturing capacity as quickly as possible.

“Over a multi-year horizon, we expect to achieve 50% annual growth in vehicle deliveries. In some years we may grow faster, which we expect to be the case in 2021.”

While the Q4 results missed expectations, analysts at Morgan Stanley said investors will take heart from Tesla’s “strike first, strike fast” approach to capacity and volumes.

They added: “This may prove wise in the long term given the vast and growing interest in the internet-of-cars market among highly capitalised and technologically capable competitors encroaching from other industries.”

• Your 50 most-popular US stocks
• Want to buy and sell international shares? It’s easy to do. Here’s how

The bank recently hiked its price target to $810 and said the car maker was richly valued for a reason. In contrast, analysts at UBS have a price target of $325 and said the guidance for 50% annual growth pointed to 2021 deliveries below the 800,000 Wall Street consensus.

Tesla’s meteoric share price rise in 2020 helped to make Musk the world’s richest man. It also boosted the finances of many retail investors after the Nasdaq-listed company was the second most-bought US stock on the interactive investor platform last year.

It has also lifted the value of Baillie Gifford’s Scottish Mortgage (LSE:SMT) Investment Trust, which has 12% of its portfolio invested in the car maker. The FTSE 100 index stock fell back 25p to 1,246p after last night’s Tesla results.