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Tesla's Blowout Q4 Results Highlight Accelerated Pace of Execution

By Daniel Sparks - Updated Jan 30, 2020 at 8:15AM

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Vehicle deliveries are soaring, profitability is improving, and Model Y production started earlier than planned.

Shares of Tesla (TSLA -6.80%) jumped more than 10% in after-hours trading on Wednesday, following the electric-car maker's fourth-quarter earnings report. Fueled by record vehicle deliveries, Tesla handily beat analyst expectations for revenue and adjusted earnings per share and raked in more than $1 billion of free cash flow.

Furthermore, the company provided optimistic updates on growth initiatives, including the start of Model Y production, strong demand for Model 3 in China, and more.

Here's a closer look at the quarter's results. 

Tesla vehicles outside of the company's factory in Fremont, California

Image source: The Motley Fool.

Soaring deliveries

Vehicle deliveries in Q4 were 112,095, the company confirmed. This brought total deliveries in 2019 to nearly 368,000 -- up 50% year over year and in line with management's initial guidance for total deliveries during the year to be between 360,000 and 400,000. 

Rapidly growing Model 3 deliveries as Model S and X deliveries declined on a year-over-year basis meant the lower-cost Model 3 accounted for 82% of Tesla's 2019 deliveries -- up from 59% of deliveries in 2018.

A bar chart showing Tesla's vehicle deliveries by model

Data source: Tesla earnings releases for quarters shown. Chart by author.

Solid financial performance

Tesla said its non-GAAP (adjusted) earnings per share in Q4 was $2.14, up from $2.00 in the year-ago period and easily beating an average analyst forecast for $1.72. This bump in earnings per share is encouraging for investors because it comes despite a significant year-over-year decline in Model S and Model X deliveries, which sell at much higher prices than the company's popular Model 3.

Automotive gross margin did contract year over year, but only slightly. The key profitability metric came in at 22.5% in the fourth quarter of 2019 -- about flat sequentially but down from 24.3% in the year-ago period.

Free cash flow was $1.01 billion, up from $910 million in the year-ago period and from $371 million in the third quarter of 2019.

A bar chart showing Tesla's quarterly free cash flow

Data source: Tesla earnings releases for quarters shown. Chart by author.

Tesla ended the quarter with $6.3 billion in cash -- up $930 million sequentially.

Key growth initiatives

Reflecting on the year, Tesla noted that its "pace of execution ... improved significantly, as we have incorporated many learnings from our experience launching Model 3 in the United States."

In particular, the company started production of its Model 3 in Shanghai for China-based customers, less than a year after breaking ground on the factory. Further, Tesla said demand for the vehicle in the important market is looking good. "Due to strong initial customer response in China, our goal is to increase Model 3 capacity even further using existing facilities," management explained in its fourth-quarter update.

Finally, Tesla announced that it had started production of its Model Y sport-utility vehicle and expects to begin delivering it to customers by the end of this quarter -- much earlier than the company's initial timeline for the fall of 2020 and even ahead of its recently updated target for the summer of 2020.

Looking ahead

For the full year of 2020, Tesla said it expects vehicle deliveries to "comfortably exceed 500,000 units." Further, the electric-car maker forecast solar and energy deployments to increase 50% year over year in 2020.

Importantly, the automaker continues to believe it won't need to access outside capital.

"We expect positive quarterly free cash flow going forward, with possible temporary exceptions, particularly around the launch and ramp of new products," management explained. "We continue to believe our business has grown to the point of being self-funding."

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