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Tesla Earnings: Strong Results and an Optimistic Outlook

By Daniel Sparks – Updated Jul 22, 2020 at 12:14PM

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The electric-car maker continues to prove the naysayers wrong.

Tesla's (TSLA 7.82%) second-quarter earnings release on Wednesday was arguably the most anticipated report this earnings season. Shares have soared from around $260 a year ago to above $1,500 going into the company's second-quarter update. This made Tesla the most valuable automotive company in the world, with a market capitalization of nearly $300 billion. Expectations were high, to say the least. 

But could Tesla live up to the hype? Apparently so. Revenue and earnings per share soared past analyst estimates as the company posted its fourth consecutive quarter of profitability, making the stock eligible to be added to the S&P 500 index. Shares jumped more than 5% in after-hours trading on Wednesday, following the update.

Model 3 interior

A Tesla Model 3. Image source: Tesla.

Better-than-expected financial results

Tesla reported second-quarter revenue of $6.04 billion. While this is down 5% year over year, it's well above analysts' consensus estimate for revenue of $5.37 billion. The decline in revenue reflects the closure of Tesla's main factory in California during the first half of the quarter as the company dealt with coronavirus lockdowns.

Adjusted EPS was $2.18, up from an adjusted loss per share of $1.12 in the year-ago period and beating a consensus analyst estimate for a $0.03 profit per share. GAAP EPS was $0.50, up from a loss per share of $2.31 in the same quarter last year.

Automotive gross margin during the period was 25.4%, up from 18.9% in the year-ago period. Notably, however, this metric benefited from sales of zero-emission regulatory credits. Without this revenue, automotive gross margin would have been 18.7%. But this is still impressive considering that the quarter included a period in which Tesla had to restart production after a factory closure and the costs associated with ramping up production of the new Model Y, which was launched in March.

"Our business has shown strong resilience during these unprecedented times," Tesla said about the second quarter in its update.

Strong vehicle-delivery guidance

Tesla acknowledged that the current environment makes forecasting difficult. But management was largely upbeat in its second-quarter shareholder letter:

We believe the progress we made in the first half of this year has positioned us for a successful second half of 2020. Production output of our existing facilities continues to improve to meet demand, and we are adding more capacity. Later this year, we will be building three factories on three continents simultaneously.

It's important to note that Tesla reiterated its guidance for 500,000 vehicle deliveries in 2020. Management had withdrawn its delivery forecast in Q1 since its factory in California was shut down at the time of the report. It's notable that Tesla is still aiming for a half-million vehicle deliveries despite the unexpected pause in production it endured earlier this year.

Finally, management said it expects its operating margin of just under 5% for the trailing-12-month period to expand over time and to eventually achieve "industry-leading levels," highlighting the operating leverage in Tesla's business.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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