Key Takeaways

  • Tesla's adjusted EPS was $1.24, versus the -$0.04 analysts expected.
  • Revenue was slightly higher than expected.
  • Vehicle deliveries rose to the highest Q1 volume ever.

What Happened

Tesla reported much higher-than-expected adjusted earnings on April 29, 2020. The company reported not only positive adjusted earnings, but was profitable even according to generally accepted accounting principles (GAAP). Tesla's adjustments to GAAP numbers are quite large, so to be profitable on both counts is a positive sign. Car deliveries remained on track for the first quarter, and investors were pleased, sending TSLA stock up over 13% for the day including after-market trading.

(Below is Investopedia's original earnings preview, published April 15, 2020)

What to Look for

Tesla Inc. (TSLA) in January set its sights on delivering more than 500,000 electric vehicles to customers in 2020, more than a third higher than 2019.  Now, reaching that target will be a major challenge given the global coronavirus pandemic that has triggered mass government-ordered lockdowns of economic activity.  Investors will be looking at how much the pandemic has hurt Tesla's current results and outlook when it reports earnings for Q1 2020 on April 29. The company has yet to formally announce a date. For the quarter, analysts estimate robust growth in both revenue and deliveries, and a sharp narrowing of year-over-year losses measured by adjusted earnings per share (EPS).

Investors will look especially closely at a key metric, Tesla's electric vehicle deliveries, which founder and Chief Executive Elon Musk says are a key gauge of Tesla's success. The 88,400 delivered in the first quarter were dramatically higher than a year ago.

Performance like this is why Tesla investors remain bullish, to say the least. The stock is up about 70% in 2020 as of morning trading on Wednesday. And in the past year, recent earnings beats have boosted investor confidence, helping the company's stock to outperform the broader market. Tesla's shares have provided investors with a total return of 171.7% over the last 12 months compared to the S&P 500's total return of -2.1%. All figures are as of April 14, 2020.

One Year Total Return for S&P 500 and Tesla
Source: TradingView.

After a long string of quarterly losses since going public, Tesla has begun to move into the black. It has posted a profit, measured by adjusted EPS, in four of the last six quarters through Q4 2019. Tesla's shares, nonetheless, have been fairly sensitive to earnings surprises. Large negative surprises in the first two quarters of 2019 led to declines in the company's stock price. But a 542.9% positive surprise for Q3 followed by a 19.8% positive surprise for Q4 helped to propel the stock to record highs. After reaching a peak around mid-February, the stock plunged with the rest of the market on mounting fears of COVID-19. But it has since rebounded sharply, far outpacing the broader market.

Despite the earnings surprises, earnings and revenue growth in Q4 was modest after a weak Q3. Tesla reported year-over-year (YOY) growth in adjusted EPS and revenue of 11.3% and 2.2%, respectively, for Q4 2019. Those numbers were a definite improvement from the 34.1% decline in earnings and 7.6% drop in revenue during Q3 2019. The decline in Q3 revenue was Tesla's first since 2012.

Analysts remain optimistic about Q1 2020 results despite the global collapse of economies. Although adjusted EPS is forecast to be -$0.04, that loss would be 98.5% smaller than the -$2.85 loss in the same period a year earlier. Revenue is expected to grow 29.5%, a reflection of optimism about vehicle deliveries.

Tesla Key Metrics
  Q1 2020 (FY) Q1 2019 (FY) Q1 2018 (FY)
Adjusted Earnings Per Share ($) -0.04 (estimate) -2.85 -3.36
Revenue ($B) 5.9 (estimate) 4.5 3.4
Vehicles Delivered 88,400 (actual) 63,000 29,980

Source: Visible Alpha; Tesla Inc.

As mentioned, one of Tesla's key metrics is vehicle deliveries, which represent the most concrete measure of whether Tesla is able to fulfill its promises of growth. Tesla has faced recurring struggles with profitability, so in order to maintain its high stock price, it needs to show growth in vehicle deliveries. The good news for Tesla is that demand for its products has remained strong, even in spite of historic production bottlenecks that have occasionally hampered car delivery numbers. The bad news is that the coronavirus pandemic has prompted the company to temporarily suspend production at its factories in California and New York.

Those shutdowns were implemented on March 23 and thus had little impact on Q1 2020 vehicle deliveries, which were up 40.3% from the same quarter a year ago. While the first quarter tends to be Tesla's slowest, the 88,400 vehicles delivered comprise only about 18% of the company's goal of 500,000 deliveries for the entire year. That means Tesla deliveries will have to average about 137,000 in each of the 3 remaining quarters for Tesla to achieve its annual goal. When Tesla announces Q1 results, investors will watch closely if CEO Musk reins in Tesla's plans in the face of the unprecedented global economic turmoil.