Tesla Ploughs Through $600 After Earnings

It must have been a hard night’s sleep Wednesday night for Tesla (NASDAQ: TSLA) bears as the shares of the electric carmaker blasted through the fabled $600 mark in after-hours trading. The company’s Q4 earnings report, released after Wednesday’s session, beat analyst expectations and set the scene for a raucous buying spree into the night.

The stock had a tough start to 2019 and for many, it must have looked like the writing was on the wall. But the tables flipped in the second half of last year. Having already rallied 150% since October and 35% since the start of this month, investors would have been forgiven for thinking that shares were already starting to look overcooked and there was more risk than reward on the table going into these earnings. However, they went into yesterday’s close up 2.5% and following the release surged a full 11% more. Thursday’s session looks likely to be a wild one as Wall Street digests the numbers and bears reevaluate their positions. And there’s plenty of numbers on the table.

Mediocre Headline Numbers

Despite beating expectations, these numbers weren’t absolute knockouts. Revenue was up 2% year on year, net income was down 5% and EPS were down almost 30% year on year. These paint a picture of a company in or at least close to fundamentally negative growth, at least for the moment.

But Tesla has always been about future earnings and potential and that’s what investors seem to be focusing on in the wake of Wednesday’s release. Even talk about the coronavirus outbreak delaying Model 3 production in China did nothing to temper trader’s enthusiasm in the after-hours session. Wedbush was out with a note after the release and talked about the rapidly approaching inflection point for electric vehicles and how Tesla are well-positioned to capture and boom in demand.

2019 was also the first year that the company hit its annual deliveries forecast without any mid-year revisions needed. If Musk is going to start delivering on all his promises like this, then the famous Tesla bears are in real trouble.

For example, the company plans to sell more than 500,000 vehicles in the coming year which was “mind-blowing” according to Bill Selesky from Argus Research. Forward guidance like this seems to have easily offset any concerns about the slow or negative growth seen in the headline numbers.

They’re also promising a quick ramp for the new Model Y and are expecting to finally be cash flow positive in 2020 with some “possible temporary exceptions”. This would mean they’re on the verge of being self-sufficient; a major milestone and validation of their business model.

The Road Ahead

Short interest has been declining in recent weeks in the midst of this latest rally as bears start to throw in the towel. It will be interesting to see what effect the $600 level being broken has on the remainder. Earlier this month the company surpassed the high water mark that Ford (NYSE: F) set in 1999 with a $100 billion market cap. This is a significant notch on Tesla’s belt as they continue to position themselves as the Ford of the 21st century.

For investors looking to get involved at these levels, it’s a tough buy out the gate given RSI is close to 90. Any pullback should be considered a buying opportunity until Musk tells us otherwise. And that’s the main risk to be cognizant of. If there are fresh production delays or a hint of lower than expected demand, then these prices will not be justified. Until that happens though, this is a company that appears to be on the verge of taking off for decades to come.