Tesla shares roared in after market trade on Wednesday in the US (Thursday, Australia time), leaping nearly 12 per cent and adding $US13 billiion ($A20 billion) in value after the electric car market delivered another quarterly profit and gave an upbeat view of the coming year.
Tesla stock had already surged in recent weeks, trebling its price from recent lows in May, overtaking the combined value of legacy car making giants Ford and GM, and also leaping above $US100 billion in market cap.
On Wednesday, the stock closed at $US581 a share, but in two major surges in after market trade leaped to $US647 a share. The company delivered a small quarterly profit of $US105 million, but it was the stability and the cash flow and the outlook that counted most for investors.
“2019 was a turning point for Tesla,” the company said. “We demonstrated strong organic demand for Model 3, returned to GAAP profitability in 2H19 and generated $US 1.1 billion of free cash flow for the year. We achieved strong cash generation through persistent cost control across the business.”
Indeed, as this graph shows above, it seems clear that 2019 was the year that the market finally understood what Musk and Tesla were about, and the implications of their success – both for the company itself and the world.
The key for Tesla, the company noted, was obviously the “strong organic demand” for the company’s Model 3 “mass-market” electric sedan, for which Tesla has not spent a dollar on paid advertising but delivered a total of 300,000 units in 2019 in domestic and overseas markets.
“For most of 2019, nearly all orders came from new buyers that did not hold a prior reservation, demonstrating significant reach beyond those who showed early interest,” it said.
“Amazingly, this was accomplished without any spend on advertising. As more people drive our cars and as the industry rapidly validates electrification, interest in our products will continue to grow.”
Musk pushed the point in a later analysts briefing. “It’s hard to think of a similar product … with $US20 billion of revenue with zero advertising spend. It’s quite remarkable.”
The coming year is equally prospective. First deliveries of the Model Y electric crossover have now been confirmed to commence by the end of March 2020, with a “gradual” ramp up of production already underway at the company’s Fremont Gigafactory.
Ground has also been broken for the next phase of the Shanghai Gigafactory to produce the Model Y in China, and Gigafactory 4 preparations in Brandenburg, Berlin, are gaining momentum with plans to begin delivering vehicles in 2021.
Production capacity for Model 3 and Model Y is now at 400,000 a year and Tesla says once additional machinery has been installed in Fremont by mid-2020 it expects annualised production to “comfortably exceed” 500,000 units.
In Shanghai, the company reports that local battery production will supply an increased production capacity based on solid customer response since “Made-in-China” Model 3 production commenced in late 2019.
With the company’s quarterly earnings call to be held shortly, more details are expected to come to light on the Model Y ramp up, as well as the release of Full Self-Driving (FSD) functionality (which Tesla says it is currently validating) and growth in Tesla’s complimentary energy and solar roof business.
Musk himself stands to enjoy a massive pay-day. If Tesla’s market cap stays above $US100 billion on both a 30-day and six-month trailing average, Musk will earn the first part of a potentially enormous compensation package that could total more than $US55 billion over the next decade.
Ironically, it’s the short sellers that targeted Tesla and Musk that are suffering the most, and could ensure that Musk enjoys that payday. According to some analysts, nearly one fifth of Tesla shares were sold short, and its huge rise means many are being foreced to capitulate and buy the stock back, fuelling the run even further.
Dan Ives, the head of securities firm Wedbush Securities, says Tesla stock is heading for $US900 a share, and a market cap of more than $US150 billion.