Thursday, April 30, 2020

Tesla Speeds Past Q1 Expectations

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What’s happening: Shares of Tesla spiked in extended trading on Wednesday, after the company reported stronger-than-expected earnings for its first quarter.

What happened: The Palo Alto, California-based company didn’t just beat expectations, it smashed them! What surprised investors even more is that the company achieved the unexpected profits even as it had to shut down production facilities in China and the US due to the pandemic.

Tesla generated healthy profits at a time when many companies are struggling to survive and are able to do so only due to the government stimulus. Investor sentiment has been very positive for this automaker and its stock reflects this, having surged 91% year to date.

The EV giant’s shares jumped more than 4% in regular trading hours yesterday, only to climb even higher by over 9% in after-hours trading, following the release of its quarterly results. However, a sharp decline in one of the its key areas could be a cause of concern for the company.

How were the results: Tesla surprised investors by posting a profit for the first quarter and exceeding Wall Street estimates. The company also achieved solid sales growth.

  • Tesla posted adjusted earnings of $1.24 per share, versus a loss of $2.90 per share in the same quarter last year. The figure was significantly higher than the expectations of an adjusted loss of 28 cents per share
  • Sales climbed to $5.99 billion, from $4.54 billion a year earlier, marginally missing the consensus estimate of $6.1 billion.

Why it matters: The latest results were the third straight quarterly profits recorded by the company.

Tesla's successful quarter comes a day after archrival Ford Motor reported a $2 billion loss for the first quarter with the coronavirus outbreak hurting overall demand. Meanwhile, General Motors announced plans to suspend its dividend and stock repurchases ahead of its earnings release scheduled for May 6.

The pandemic has led to a dramatic contraction in the demand for cars, forcing Tesla and other automakers to furlough employees. Vehicle demand in the hardest-hit regions in the US plunged around 80% in March, which has become a major cause of concern. Analysts are so far projecting a quick recovery in sales once the lockdowns end. However, rising unemployment doesn’t bode well for the automobile market. And, Tesla cars have so far been more expensive than gas-powered ones.

Tesla has been slashing prices of Model 3 to gain market share. CEO Elon Musk has now announced more price cuts for Model 3 vehicles manufactured in China.

What to watch: Tesla has indicated that operations at its Shanghai facility are advancing stronger than projected and investors are hopeful of the company returning to a normal growth trajectory soon. Investors also expect the company to resume operations at its California facility soon.

The Markets Today

     

European stocks will be in focus today, ahead of key central bank meetings scheduled for later in the day.

Context: European stocks closed higher on Wednesday, after Gilead Sciences indicated positive data from its remdesivir drug trials for treating coronavirus. Investors were also optimistic ahead of the European Central Bank meeting, expecting further stimulus measures to save the struggling economies.

Details: Gilead’s drug remdesivir helped coronavirus patients recover faster than standard care, according to preliminary data from the National Institute of Allergy and Infectious Diseases. The company is planning to share the trial details shortly.

Investors shrugged off disappointing economic data releases from the Eurozone, which showed the sharpest ever decline in economic confidence. The region’s economic sentiment indicator dipped to 67 in April, from a reading of 94.2 in March.

Meanwhile, shares of Barclays spiked over 12% after the financial services company reported results for the first quarter. Standard Chartered and Deutsche Bank also saw their shares climb despite disappointing first-quarter results.

The pan-European Stoxx 600 index climbed 1.75%, with most sectors closing in positive territory. London’s FTSE 100 rose 2.63%, German 30 traded higher by 2.89% and French 40 closed higher by 2.22% on Wednesday.

Investors continue to assess the daily coronavirus figures, with the total number of global cases exceeding 3,193,880. The number of positive COVID-19 cases in Spain has surpassed 236,890 with around 24,270 deaths, while Italy has confirmed over 203,590 cases.

What to watch: Investors await minutes of the ECB meeting, especially after Fitch downgraded its Italian debt rating to BBB-. Since the European Central Bank has little wiggle room to lower interest rates, investors are expecting other stimulus measures to trigger an economic recovery.

Markets also await a basket of economic reports from the Eurozone, including GDP, inflation rate, unemployment rate, deposit facility rate and marginal lending rate. The Eurozone’s economy is expected to contract 3.1% in the first quarter. The inflation rate is expected to decline to 0.1% in April, from 0.7% in March. The unemployment rate, which fell to 7.3% in February, is projected to rise to 7.7% in March.

Other Markets: US indices closed higher on Wednesday, with the Dow, S&P 500 and Nasdaq 100 up by 2.21%, 2.66% and 3.57%, respectively.

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France’s GDP growth rate, household consumption, producer prices and inflation rate, Germany's retail sales and unemployment rate, Japan’s construction orders, Russia’s manufacturing PMI, GDP, corporate profits and money supply M2, South Africa’s private sector credit, money supply M3, producer prices and balance of trade, UK’s nationwide housing prices and car production, Spain’s GDP annual growth rate, current account and inflation rate, Turkey’s balance of trade, tourist arrivals and tourism revenues, Italy’s unemployment rate, GDP annual growth rate and inflation rate, Mexico’s GDP growth rate, India’s infrastructure output, Brazil’s unemployment rate, net payrolls and government budget value, Canada’s GDP and producer prices as well as the US personal income, spending, initial jobless claims, employment cost index, Chicago PMI and natural gas stocks change.