What’s happening: Shares of Tesla Inc. gained over 4% in extended trading on Wednesday after the electric car manufacturer surprised investors by reporting a profit for the second quarter.
What happened: Tesla’s production had suffered to some extent during the second quarter, with its factories being forced to remain closed due to the coronavirus outbreak.
Despite the setback, the Palo Alto, California-based company managed to generate a profit, opening the probability of its stock joining the S&P 500 index. Analysts expressed concern, however, regarding the epic rally in Tesla’s stock this year.
How were the results: The automaker reported its sales for the quarter ahead of expectations and swung to a profit in the second quarter.
- Sales declined 5% to $6.04 billion, from $6.35 billion in the same quarter last year. Despite the decline, the figure came in higher than the consensus view of $5.15 billion.
- Tesla posted a profit of $104 million, or 50 cents per share, versus a year-ago loss of $408 million, or $2.31 per share.
- Excluding onetime items, earnings were recorded at $2.18 per share, compared to a year-ago adjusted loss of $1.12 per share. The figure was much better than the consensus expectations of an adjusted loss of 2 cents per share.
Why it matters: Earlier this month, Tesla had announced better-than-expected deliveries, despite its US factory in California being closed for most of the quarter due to shutdown orders by the government.
The announcement triggered a stock rally, sending Tesla’s market capitalisation to about $300 billion, far ahead of Japan’s Toyota Motor. The company’s shares had surged to an intraday high of $1,794.99 on July 13.
With the latest quarter’s results, Tesla has reported profits for four consecutive quarters, meeting a condition required for its stock being included in the S&P 500 index, which could happen over the next few months.
Tesla said it plans to continue building capacity for Model Y and is on track to begin sales of the compact SUV from its Berlin and Shanghai factories in 2021.
Management did not issue any guidance for 2020 citing uncertainty around the pandemic. Tesla reassured investors saying, “We have the capacity installed to exceed 500,000 vehicle deliveries this year, despite recent production interruptions.”
Even with this aggressive target, the company would be catering to less than 1% of the global auto market, analysts from BofA Securities said in a report. They believe Tesla's fundamentals are not yet stellar, although the company has executed well amid the pandemic. The analysts added that the stock “appears overheated” and the share price is no longer supported by fundamentals.
How shares responded: Tesla’s shares gained 4.1% to reach $1,657.00 in after-hours trading following the release of strong quarterly results, after closing the regular session higher by 1.5%. The stock has climbed around 300% this year, versus a 1% gain in the S&P 500 and a 6% decline in the Dow Jones index.
What to watch: With Tesla saying that it will meet its delivery target for the year, investors will continue to look out for news related to economic recovery in the company’s key US and China markets as well as any production disruption at its factories. Markets remain cautious, as the company’s factories in the US are in California, Nevada and Texas, which are currently the covi-19 hotspots.