Categories Analysis, Industrials

Tesla (TSLA) continues the winning streak, but stock looks overvalued

The company tackled headwinds from the chip shortage in the automotive industry through its flexible approach to technology adoption

Extending its winning streak, Tesla, Inc. (NASDAQ: TSLA) entered 2021 on an upbeat note, reporting impressive first-quarter results. The electric car giant has been busy expanding capacity aggressively to deal with delivery issues, in a market battered by the pandemic, and is currently eyeing a 50% annual average growth.

On Target

Besides the virus-related disruption, operations were also challenged by widespread chip shortage, which the company resolved through its flexible approach to technology adoption. That helped it meet the production and delivery goals and to stay on track to begin the delivery of Model X and a new variant of Model S this year. But it will not be a smooth ride, given the continuing supply chain woes.


Read management/analysts’ comments on Tesla’s Q1 report


From Tesla’s first-quarter 2021 earnings conference call:

“As we look forward, our plans remain unchanged for the long-term growth of 50% annually and we believe we’re on track to exceed that this year as we guided to last quarter. Global demand remains meaningfully higher than production levels. And so we’re driving as fast as we can to increase our production rates. As we think about Q2 and Q3, these quarters should largely be driven by execution on S and X as we’ve discussed, the continued ramp of Model Y in Shanghai, and the associated cost reductions of these programs.”

Tesla Q1 2021 earnings infographic

In Correction Mode

It seems investors were not happy about the fact that a part of the record-high first-quarter revenues came from the sale of cryptocurrency and regulatory credit. Tesla’s stock, which gained about 67% in the past six months, suffered a big loss after Monday’s earnings announcement despite the impressive outcome. The shares are currently trading well above their 52-week average, after an unusual rally that raised concerns that the company is overvalued.

The high valuation can be attributed mainly to Tesla’s monopoly in the electric car market, though other players a rapidly making inroads into that space vying to grab market share from it. Experts believe that the stock is headed for correction this year, which makes it a risky bet. At the current price, TSLA is best for those willing to take risks.

Cash Flows

After a prolonged cash-burning spree, Tesla has strengthened its liquidity position so that the product innovation and capacity expansion strategy can be implemented with ease. It is on track to roll out Model Y SUVs from the Berlin and Texas plants this year, which complements the long-term objective of raising operating margin to industry-leading levels.

We’re building factories as quickly as we can. Both Texas and Berlin are progressing well. And we expect to have initial limited production from those factories this year and volume production from Texas and Berlin next year. At this time we are continuing to ramp the production of Model Y in Fremont and Shanghai. In the background, we’re continuing the work — development work on the semi Cybertruck, the Roadster, and other products.

Elon Musk, chief executive officer of Tesla

Riding High

Earnings surged to an all-time high of $0.93 per share in the first quarter when all the four operating segments registered double-digit growth, resulting in a 74% surge in total revenues to $10.4 billion. The numbers also came in above the market’s projection. Tesla has stayed profitable for more than a year now, shrugging off concerns about the sustainability of the turnaround. After delivering a record number of vehicles –184,877 units — the management is looking to achieve an average annual growth rate of 50%.

While the delivery goals look impressive, long-term success would depend on how effectively the company provides after-sales service, given the sluggish expansion of its service center network compared to sales. Meanwhile, recent accidents involving Tesla vehicles have raised questions about the reliability of its technology.

Tesla’s market value peaked in January, after growing manyfold in the trailing twelve months. The momentum waned since then and the stock suffered a selloff this week. It traded lower in the early hours of Tuesday, extending the downturn experienced in the previous session.

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