Recurring profit, beats Wall St. as business matures, S&P 500 in focus

Recurring profit, beats Wall St. as business matures, S&P 500 in focus

Tesla’s (NASDAQ:TSLA) second-quarter earnings for 2020 saw the electric car maker post $6.036 billion in revenue, beating estimates from Wall Street. The results, which were discussed at length in an Update Letter, were released after the closing bell on Wednesday, July 22.

Tesla’s second quarter was hit by the pandemic. Yet despite the ongoing pressures from the coronavirus outbreak, Tesla managed to deliver over 90,000 vehicles in Q2, thanks to the Model Y building momentum in the United States and the Model 3 hitting its stride in China. 

The following are the key points in Tesla’s Q2 2020 Update Letter.

REVENUE

Tesla reported revenue of $6.036 billion for the first quarter, beating Wall Street’s expectations. In contrast, Wall St. expected Tesla to report revenue of $5.146 billion, less than the $5.985 billion that the company reported in the first quarter. In comparison, Estimize, a crowdsourced platform that aggregates estimates from analysts, executives, fund managers, and academics, is a bit more optimistic, expected Tesla to post a revenue of $5.443 billion. 

PROFITABILITY

Tesla reported a GAAP operating income of $327 million; 5.4% operating margin in the second quarter. A $104 million GAAP net income and $451 million non-GAAP net income was also reported by the company. With this, Tesla has achieved four quarters of profitability. 

EARNINGS

Tesla shareholders saw non-GAAP earnings per share of $2.18 in the second quarter. In comparison, Wall Street expected Tesla to report a loss of $0.14 per share. Interestingly enough, Estimize’s numbers stand opposite to Wall Street, with the platform expecting Tesla to post a profit of $0.19 per share. 

CASH

Tesla posted a $535 million increase in its cash and cash equivalents in the second quarter to $8.6B, while generating positive free cash flow of $418M. These, according to the electric car maker, will allow it to take on the second half of 2020 with a stronger stance.

“Our business has shown strong resilience during these unprecedented times. Despite the closure of our main factory in Fremont for nearly half the quarter, we posted our fourth sequential GAAP profit in Q2 2020 while generating positive free cash flow of $420M,” Tesla wrote.

KEY HIGHLIGHTS

  • Next US Gigafactory site selected; preparations underway
  • Increased Model S range to 402 miles (EPA)
  • Model Y and China-made Model 3 production rates continue to increase
  • 500,000 target unit deliveries for 2020 reaffirmed
  • Tesla Semi deliveries planned for 2021

With such results, Tesla is poised to qualify for inclusion into the S&P 500, which requires a company to post four quarters of profit. The potential inclusion of Tesla into the index stands to benefit TSLA stock, as funds that are tracking and benchmarking against the S&P 500 would likely have to purchase shares. Such a scenario would likely push Tesla to new heights.

The results of Tesla’s second quarter earnings have been received enthusiastically by TSLA shareholders. As of writing, TSLA stock is trading 5.37% at $1,677.82 per share. 

Tesla’s Q2 2020 Update Letter could be accessed below.

Q2’20 Update by Simon Alvarez on Scribd

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.

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