Thursday, October 22, 2020

Tesla Races Ahead with Another Quarter of Profits


News shaping
the markets today


What’s happening: Shares of Tesla Inc. gained in extended trading on Wednesday after the electric car maker reported profits for the fifth consecutive quarter.

What happened: The auto industry overall has been on a downward trend due to the pandemic, recording sluggish sales this year.

Tesla was able to buck the negative trend, however, to report profitable quarters even amid economic disruption. Investors have rewarded the company by sending its shares higher by a whopping 400% this year.

How were the results: The Silicon Valley car maker reported 40% growth in sales for the third quarter, with both its top- and bottom-line exceeding estimates.

  • Sales climbed to $8.77 billion, from $6.30 billion in the same quarter last year, surpassing the consensus view of $8.28 billion.
  • Earnings stood at $331 million, or 27 cents per share, up from 16 cents per share, in the year-ago quarter.
  • Excluding one-time items, the company’s earnings grew to 76 cents per share, from 37 cents per share, convincingly beating the consensus estimate of 56 cents per share.

Why it matters: Tesla’s accelerating momentum underlines market confidence in the prospects for electric vehicles, helping the company become the biggest global automaker in terms of market capitalisation. The company’s current market cap stands at around $394 billion.

The company’s sales of regulatory credits declined to $397 million last quarter, from $428 million in the prior quarter. Regulatory credits are a major part of Tesla’s strong earnings, and without them the company would not have recorded a profitable quarter. CEO Elon Musk said the quarter was the best in Tesla’s history.

Tesla also reaffirmed its projection to deliver half a million vehicles by yearend, which requires a significant ramp up of sales in the final quarter. Musk recently announced price reductions for some cars, including Tesla’s flagship sedan, Model S, to trigger more sales.

Although management indicated that the company had enough capacity installed to manufacture 500,000 vehicles, they acknowledged that the target was not easy. “Achieving this target depends primarily on quarter over quarter increases in Model Y and Shanghai production," Tesla said in a statement.

How shares responded: Tesla’s shares rose 3.2% to $436.31 in after-hours trading following the release of quarterly results. The stock has added around 405% year to date, gaining around 35% in the last three months.

What to watch: Investors will monitor Tesla’s progress in rolling out its fully self-driving feature by the end of the year, and the impact of this on its overall sales. Markets will also keep an eye on sales, as the company struggles with its ambitious deliveries target given the resurgence of covid-19 cases in Europe and the US. The strong earnings might also help the company get included in the S&P 500.

The Markets Today


European stocks will be in focus today, ahead of the consumer confidence report from the region.

Context: European stocks declined for a third consecutive session on Wednesday, with concerns over a rise in infections overshadowing the earnings season.

Details: Investor sentiment was dampened by European Central Bank’s President Christine Lagarde expressing concerns over the rise in covid-19 cases. Many regions in Europe have reimposed lockdowns, while Spain said it was considering a countrywide curfew.

With no progress in talks around the US stimulus package, investors continued to worry about the prospects of the global economy.

Markets could not be lifted even by good news on the corporate front. Ericsson reported better-than-expected profits and reiterated its projections for the year. Shares of the telecommunications equipment maker climbed around 12% after the release of results. Randstad’s stock gained around 6% after the Dutch company said its revenues had marginally recovered in the third quarter.

The Stoxx Europe 600 index declined 1.3% on Wednesday, following a 0.4% decline in the prior session. The DAX 30 index fell 1.4%, while CAC 40 lost 1.5% and London’s FTSE 100 declined by 1.9%.

What to watch: Investors await consumer confidence data from the Eurozone. The consumer confidence indicator is expected to decline to -15 in October, from a reading of -13.9 in September. With the resurgence in infections, investors continue to focus on the covid-19 numbers which have surpassed 41.1 million globally.

Other Markets: US indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down 0.35%, 0.22% and 0.28%, respectively.

Support & Resistances
for Today


market snapshot


Futures at 0400 (GMT)

What else to watch today


UK’s CBI industrial trends orders and business confidence, Central Bank of Turkey’s interest rate decision and Turkey’s gross foreign exchange reserves, Argentina’s consumer confidence, balance of trade and economic activity as well as the US initial jobless claims, existing home sales, EIA’s natural gas stockpiles, CB leading index and Kansas City Fed's manufacturing production index.