Tesla reported a net income of $270 million in 2020’s final quarter, helping Elon Musk’s electric vehicle powerhouse notch its first profitable year. As usual, sales of pollution credits helped keep the company in the black.
The Palo Alto, California-based company said it had earnings per share of 24 cents on a GAAP basis for the quarter that ended Dec. 31, 2020, and 64 cents for the year. Full-year net income was $721 million. Quarterly revenue, led by sales of the company’s Model 3 and Model Y electric vehicles, was $10.7 billion and the annual tally was a best-ever $31.5 billion.
The results were solid but slightly below expectations, according to Wedbush analyst Dan Ives. “Pro-forma EPS was $0.80 vs. the Street estimate $1.02, although going forward the core profitability picture continues to improve at an accelerated rate which is key for the bulls,” he said in a research note.
It was a “moderately underwhelming quarter all things considered, with EPS and revenue missing analyst’s expectations overall despite record vehicle deliveries and the largest top-line revenue the company has ever achieved in the quarter,” said Nick Shields, senior analyst at Third Bridge.
The company’s shares fell 2.1% to $864.16 before results were released, and dropped a further 3.4% in after-hours Nasdaq trading. Musk, who vies with Amazon’s Jeff Bezos for world’s richest human, had a net worth of $186.6 billion as of Wednesday’s close (compared with $188.4 billion for Bezos).
“Despite unforeseen global challenges, we outpaced many trends seen elsewhere in the industry as we significantly increased volumes, profitability and cash generation,” Musk said in a letter to shareholders. While the company didn’t immediately provide sales or production guidance for 2021, it suggested this year could see growth of more than 50% owing to increased output in China.
Equity analysts anticipated the company would issue production guidance of at least 800,000 units for 2021. Its projection of 50% annual growth, indicating 750,000 vehicles this year, was below expectations. Notably, it also said it now has capacity to produce 1.05 million vehicles at plants in the U.S. and China, including 600,000 at the Fremont, California, factory alone.
Sales of pollution credits, including California zero-emission vehicle and U.S. CAFE credits, remain a lucrative source of revenue for Tesla as they’re generated for each electric vehicle it sells. The $401 million received in the fourth quarter boosted its annual credit sales total to $1.58 billion, more than double 2019’s haul.
Teslas have become more affordable in the past few years with the introduction of the Model 3 and Y, but the company’s average price per vehicle in the fourth quarter of $51,581 was still several thousand dollars above the U.S. industry average price that Edmunds estimates was $40,184.
“Tesla’s fortunes would only seem to look brighter in light of the new presidential administration signaling strong support for electric vehicles, but there are challenges ahead for the company that could take some of the wind out of its sails,” said Jessica Caldwell, Edmund’s executive industry analyst. “Although there has yet to be a true “Tesla killer” in the EV arena, a bigger pool of contenders eligible for federal tax credits could have the power to sway some Tesla shoppers.”
In the U.S., competition will grow quickly with the introduction of at least a dozen new battery-powered models, she said. And while Tesla is quickly expanding sales and production in China–which it notably didn’t break out in its latest quarterly results–it faces new competition there from homegrown challengers including NIO and Xpeng. NIO in particular is moving fast with sales in China on track to reach 40,000 units in 2020, doubling from 2019.
Tesla shares surged more than 700% in 2020, making it by far the world’s most valuable automaker with a market cap of $819 billion–despite selling only about 500,000 vehicles last year, a fraction of the multiple millions of vehicle sales companies such Toyota, Volkswagen and General Motors rack up. Its market cap is currently also 26 times its annual revenue and more than a thousand times last year’s net income.
Nevertheless, Musk suggested on a conference call that the future potential of Tesla vehicles with “full self-driving” capability to offer at least double the utility of conventional cars is one way to justify the sky-high valuation. “I suspect to be some number of investors are taking that approach.”
The exact timing of when that capability will be available remains murky, though Musk said it might “become likely” this year.