Making Sense Of Tesla’s (NASDAQ: TSLA) Earnings

Tesla (NASDAQ: TSLA) was out with their Q1 earnings last night in what was arguably one of this season’s most eagerly awaited quarterly reports. Somewhat characteristically, even though the numbers came in red hot, shares still fell in the after-hours session. They were also trading down in Tuesday’s pre-market session but there’s more than meets the eye here. Investors who have up to now been on the sidelines of the Tesla journey will have a lot to chew on. 

For starters, Elon Musk and Co. comfortably delivered a sound beat on analyst expectations on both bottom-line EPS and top line revenue. The latter in particular grabbed attention immediately as it showed year-on-year growth of more than 70%. Additional highlights included the company’s non-GAAP net income passing the $1 billion mark for the first time, their Model 3 being the best-selling premium sedan globally, and their Shanghai factory production output gathering pace.

To the last point, the company painted a bullish picture as investors were told "we expect that our Shanghai factory will continue to increase quarterly production output through the year. We recently improved our domestic supply sourcing ratio to over 90%. Vehicle exports to Europe and APAC continue to progress as planned".

Run of Profitability

It was also the 7th quarter in the row that Tesla was profitable, with those heavy cash-burning days and negative cash flow quarters fast becoming a distant memory. Over a long-term horizon, the company also set their expectations for delivery growth around 50% on an average annual basis. For all that though, shares were still under pressure and it looks like it might have been a “sell the news” type of evening. For investors with the longer-term view, however, it should feel pretty comfortable to start opening a position around now. 

The bull case which sent shares up more than 1,000% last year hasn’t really changed, and if anything this report has confirmed much of it. Having spent years getting to the 120,000 mark in terms of quarterly deliveries, and only crossing it for the first time in Q3 of last year, that number has now surged to more than 180,000. Things are gathering pace with the fundamentals and technically speaking, there’s also a lot to be said for the two months of consolidation we’ve seen. Not many would have been surprised had Tesla shares retraced towards $400 after peaking at $900 in January. That’s where the last phase of consolidation had been based before Q4’s rally took off and before a higher interest started spooking tech investors. 

Strong Technicals

But that hasn’t come to pass, and if anything we’re looking at a new rally finding its legs. Shares are up nearly 30% in the past four weeks with both a rising RSI line and MACD line supporting the run. Adam Jonas from Morgan Stanley boosted his price target on Tesla shares last week to $900, and the Q1 delivery number that he also boosted was subsequently topped last night. 

It’s fair to assume that some volatility will be present this week as Wall Street digests the numbers but the longer term outlook has really only become more positive. Tailwinds from Biden’s renewable energy initiatives are expected to yield solid results for electric vehicle (EV) makers, of whom Tesla is by far and away the market leader. They have first mover’s advantage and so no matter what their competitors come out within the coming months, it will constantly be compared against what Tesla has done and is doing. 

With shares still down close to 20% from last quarter’s all-time highs and a solid earnings report behind them, you’d want to be quite bearish on the EV space overall let alone Tesla to not fancy the long opportunity here. Look for any bout of selling to run out of steam around the $670-700 mark, and then as shares turn upwards we have this month’s high of $780 forming an initial target with last quarter’s, and Morgan Stanley’s, $900 waiting for us then.