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Analysts Expect Robust Earnings From Tesla in 2019

By Daniel Sparks - Updated Apr 22, 2019 at 11:02PM

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Achieving meaningful profits could help Tesla focus less on near-term cash flow and more on maximizing long-term shareholder value.

Check out the latest Tesla earnings call transcript.

With so much discussion in the media about Tesla's ( TSLA -6.42% ) debt obligations and challenging cash flow situation, it would be easy to conclude that analysts have gloomy expectations for the company. But this is surprisingly not the case. Indeed, the consensus forecast for the company's earnings per share in 2019 is actually quite rosy.

Of course, analysts' forecasts vary significantly, covering a wide spectrum. But here's one fact about these estimates that may surprise some investors: Of the 27 analysts with estimates for Tesla's 2019 earnings per share (via Yahoo! Finance), every single one of them currently expects the company to be profitable for the full year.

A woman unlocks her Model 3 with a Tesla app on her smartphone

Model 3. Image source: Tesla.

Expecting a profitable 2019

Though Tesla swung to a profit on both a GAAP and non-GAAP basis in its third quarter and said it will be profitable in its fourth quarter, as well, the company will still likely lose money on a full-year basis in 2018. On average, analysts expect the company's full-year non-GAAP loss per share for the year to be $3.04.

But analysts are modeling for a huge upward swing in Tesla's profitability in 2019. Not only is every analyst expecting full-year profitability, but the consensus analyst estimate for non-GAAP earnings per share for the period is for $6.22. This forecast gives Tesla a forward price-to-earnings (P/E) ratio of 48 -- not bad for a company growing as fast as Tesla is. The company's vehicle deliveries in 2018 soared more than 180% compared to deliveries in 2017 -- and the Model 3 didn't even expand to Europe or Asia until 2019.

While the lowest analyst estimate for Tesla's non-GAAP earnings per share in 2019 is just $0.59, even this is notable for a fast-growing company in a capital-intensive industry. Therefore, even the most bearish analyst estimate highlights how the company is making progress toward profitability while simultaneously expanding its business aggressively.

The highest analyst estimate at the time of this writing calls for full-year non-GAAP earnings per share of $19.82. This gives Tesla a forward P/E ratio of just 15 -- a level below slower-growing and more mature companies like AlphabetMcDonald's, and even Walmart

To be fair, investors should never give too much weight to analyst estimates, relying instead on their own due diligence. But it's interesting to observe the impressive level of profitability analysts are expecting from Tesla this year. Achieving meaningful profitability this early in the company's growth story could enable management to focus less on near-term cash flow and profitability and more on maximizing long-term shareholder value.

Tesla is aiming to improve its balance sheet

Whether or not profits come close to the current consensus forecast for 2019, there's no doubt that Tesla is focused on de-risking its balance sheet. When asked in the company's third-quarter earnings call about whether Tesla is aiming to become sustainably self-funding without the need of outside capital, Musk replied, "Yeah, that is our goal." 

Musk added: "We do not intend to raise equity or debt, at least that's in our intention right now, you know that may change in the future, but the current operating plan is to pay off our debt and not to refinance them but pay them off and reduce the debt load and overall leverage for the company."

If Tesla does achieve meaningful profitability in 2019, the company will likely make progress on its goal to improve the risk profile of its balance sheet.

For Tesla's fourth quarter, the company recently said it expects its GAAP profit to be less than the $1.75 it earned in Q3. But it said achieving even just a "tiny profit" in its first quarter will take a lot of work and "some luck."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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