On Wednesday evening, stock market lightning rod Tesla (TSLA) released the firm's fourth quarter financial results. Those results were generally positive, though there was enough to both like and dislike within. Let's explore.
For the three month period reported, Tesla posted adjusted EPS of $1.19 (GAAP EPS: $1.07) on revenue of $24.318B. The $0.12 per share adjustment was made for expenses associated with stock based compensation. The adjusted earnings number did beat Wall Street as net income for the period printed at $3.707B (+58.2%). The revenue print, while good for year over year growth of 37.2%, just met Wall Street's expectations.
Looking within, automotive revenue increased 33.4% to $21.307B, while energy and services driven revenue increased 71.9% to $3.011B. Cost of automotive revenue increased 42.4% to $15.785B, producing an automotive gross margin of 25.9% (down from 30.6%). Total cost of revenue increased 44% to $18.541B, putting total gross margin at 23.8% (down from 27.4%) as gross profit increased 19.2% to $5.777B.
Operating expenses decreased 16% to $1.876B, allowing operating margin to increase from 14.7% to 16% as operating income increased 49.3% to $3.901B. After accounting for interest income and expenses as well as taxes, we get to the $3.707B number for net income mentioned above.
Operations
Tesla produced 439,701 vehicles (+44%) during the fourth quarter. Of these vehicles, 419,088 (+43%) were of the Model 3 and Y varieties and 20,613 were Models S and X. The firm delivered 405,278 vehicles (+31%) in total. Of those, 388,131 (+31%) were Models 3 and Y and 17,147 (+17%) were Models S and X. End of quarter operating leased vehicle count came to 140,667, which was up 17%. Globally, Tesla ended the quarter with 13 days worth of inventory in stock, up from four days for the year ago comp and from eight days just a quarter ago.
Over the past year, Tesla has increased its number of stores and service locations 19% to 764, while increasing supercharger stations and supercharger connectors 35% each to 4,678 and 42,419, respectively.
Outlook
Tesla plans to grow production as quickly as possible in alignment with the 50% CAGR (compound annual growth rate) target that the firm has been guiding toward since early 2021. For the full year 2023, Tesla expects to beat that target and produce a rough total of 1.8M vehicles.
Separately, the firm says that it remains on track to begin production later in 2023 of the Cybertruck at Gigafactory Texas. Additional details will be released at the firm's Investor Day on March 1st.
Fundies
Operating cash flow contracted 28.5% to $3.278B, as capital expenditures increased 2.7% to $1.858B. This put free cash flow at $1.42B, down 48.8% from the year ago comp.
Turning to the balance sheet, Tesla ended the period with a net cash position of $22.185B and inventories of $12.839B. This brought current assets to $40.917B. Current liabilities add up to $26.709B. That places the firm's current ratio at a very healthy 1.53 and that is up from 1.38 a year ago. Sans inventories, the firm's quick ratio now prints at 1.05, which is still quite good, and that's even with 123% growth in inventories over 12 months.
Total assets add up to $82.338B, which includes just $4.193B in "goodwill" and no other intangible assets. We like that. Total liabilities less equity comes to $36.44B, which includes a debt load of just $1.597B. This balance sheet is in fine condition.
Wall Street
Since these earnings were released last night, I have found eight sell-side analysts that both opined on TSLA and are rated at four or five stars by TipRanks. Of those eight, there are five "Buy" or buy-equivalent ratings, two "Hold" or hold-equivalent ratings and one "Underperform" rating, which is considered to be sell-equivalent.
The average target price across these eight analysts is $185 with a high of $250 (Vijay Rakesh of Mizuho Securities) and a low of $140 (Jeff Osborne of Cowen). Once omitting those two as potential outliers, the average target across the other six drops to $181.67.
My Thoughts
There is a lot to be impressed with. Record quarter financially. Not so hot on the free cash flow side as margins came in hard. Production will remain aggressive, even if prices had to be sharply reduced late in the year in order to move these vehicles. Even then, inventories remain historically elevated.
Oh, and during the call, CEO Elon Musk defended his ownership of social media company Twitter, saying he is not worried about any damage done to the Tesla brand due to his activity on that site.
I saw TSLA trading with a $157 handle this morning (+9.3). I am short a smallish position as I was day-trading the name this morning prior to agreeing to cover the stock today. I had a short position then, and I can not act to cover or increase that position at least until publication so I am frozen. I am short at $153.81. Had my hands not been tied, I would have made a $160 sale as well. Not a complaint. Just how I ended up short for a few hours a stock that I probably would not short for anything other than day-trading purposes.
The stock is both down 68% from the September high and up 53% from its early January low. You might say this name is volatile. I am looking at the 200 day SMA (simple moving average) as $151 as crucial. The stock holds that line, a Fibonacci retracement to $82 is totally possible. That line fails? Then TSLA probably sees prices back in the low $140's or worse.
Making the whole ballgame more interesting is the fact that the 50 day line now runs right through the gap created between last night's close and this morning's open.
I am probably just going to trade this name today. That said, an investor could minimally grab 100 shares here at $156 and sell the February 17th $170 calls for almost $5 against the position, knocking net basis all the way down to $151-ish. If investing in this name today, I think selling covered calls against at least part of that long is a no-brainer.
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January 26, 2023 at 10:47PM
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