Tesla – up, up and away but for how long?

An unexpectedly profitable three months propelled Tesla’s stock to over USD 850 before it plunged to USD 670 when the electric carmaker’s chief executive, Elon Musk, sent out a tweet complaining about the high price. Not much later, though, the stock rallied again, racing toward USD 1,000 after sister company SpaceX, which is also headed by Musk, announced it successfully sent one of its rockets into orbit.

The announcement prompted not only SpaceX’ but also Tesla’s stock to go through the roof. Seen that way, the rally was more likely the result of enthusiasm gone overboard than a genuine assessment of the carmaker’s strengths and weaknesses. But let us start at the beginning:

Based on GAAP accounting rules, the first quarter of this year netted investors only a tiny profit, USD 0.09 per share. Using non-GAAP standards, which had been expected to lead to a loss of around USD 0.36 a share, earnings increased to USD 1.24 and sparked a wave of euphoria among Tesla aficionados. Since then, however, people in several online auto forums have raised questions about the veracity of the numbers, the reason being that most of the company’s profits for the first three months of 2020 seem to stem from the sale of regulatory credits, also known as ZEVs in California, to FiatChrysler. Selling them brought in as much as USD 354 million, far more than expected, but not still revenue generated from marketing vehicles. Recently, more news reports were driving up Tesla’s price. For example, one outlet said Tesla [Nasdaq: TSLA] could soon join the S&P 500. A stock split could also boost its price, even if such a move is purely cosmetic.

read more in H2-international August 2020

Risk warning
Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small- and mid-cap businesses, which means their stocks may experience high volatility. The information in this article is based on publicly available sources, and the views and opinions expressed herein are those of the author only. They are not to be taken as a suggestion of what stocks to buy or sell and come without any explicit or implicit guarantee or warranty. The author focuses on mid-term and long-term prospects, not short-term gains, and may own shares in the company or the companies being analyzed.

Author: Sven Jösting, written June 13th, 2020

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