The Tesla share price rose a little over 4% in after hours trading yesterday, adding to a 1.53% gain during the Wall Street session, to combine to another lift of almost 6%. The spectacular ascension of the electric vehicle maker’s value, a rise that has seen it overtake Toyota as the most valuable automaker in the world, continued after a fourth quarter of profits was posted.
The four consecutive quarters of profit also add up to Tesla’s first ever full year of profit, putting to bed fears of a sales slump in the midst of the coronavirus pandemic. Tesla is also now on track to become a constituent of the prestigious S&P 500 stock market index.
Over the second quarter of 2020, California-based Tesla recorded a profit of $104 million on revenues of $6.04 billion, compared to $5.99 billion over the previous three months. Chief executive Elon Musk reacted to the achievement of four straight quarters of profits in the 17 years since the company was founded with the statement:
“Our business has shown strong resilience during these unprecedented times. Despite the closure of our main factory in Fremont for nearly half the quarter, we posted our fourth sequential profit . . . while generating positive free cashflow of $418 million.”
July is proving to be a very positive month for Tesla having already positively surprised the market with news that it had delivered 90,891 new cars between April and June. The number of new deliveries was particularly impressive against the backdrop of the Tesla factory in Fremont, California, working at substantially reduced capacity as a result of the Covid-19 pandemic and lockdown restrictions.
Four consecutive quarters of profit has seen Tesla meet a key requirement for promotion to the S&P 500. The company is currently a constituent of the technology-focused Nasdaq index. The S&P 500 is a broader-based index designed to reflect the breadth of the U.S. corporate landscape and is the most followed of the three major U.S. indices, which also include the Dow Jones industrial index. A committee of the S&P Dow Jones Indices is set to meet in September and will assess Tesla’s size and liquidity as well as now proven capacity for consistent profitability.
In terms of market capitalisation, at its current value of around $295 billion, Tesla is already more valuable than 95% of the S&P 500’s constituent blue chips. It would become one of the most valuable companies at the point of being added to the index, if the move goes ahead as expected. Simply being part of the S&P 500 should help support Tesla’s eye-watering value as many large index funds automatically by stock in all constituents of the index.
Sales in China over the last quarter proved decisive in driving Tesla over the line to achieve a year of profitability. Revenues from the market have been boosted by the opening of a new Tesla plant in Shanghai late last year. The first time a U.S. automaker has been allowed to independently build and run a plant in China without a local partner. The Model 3, Tesla’s cheapest to date starting at around $40,000, has, said the company “received a strong reception in China”.
Tesla offered investors forward guidance that, despite the fact the “goal has become more difficult”, it is on course to delivery more than 500,000 electric vehicles this year, compared to 367,500 in 2019. That news calms concerns the Covid-19 pandemic and expected recession to follow could hit demand for luxury electric vehicles.
Founded in 2003 and led by Elon Musk, who was one of Tesla’s big early investors, the company’s stated goal is to sell electric cars with autonomous driving features at a price point accessible to the average consumer. With the cheapest model available, the base level Model 3, still coming in at around £40,000, there is still some way to go before reaching that target.
In the meanwhile, it seems as though there is enough demand from the well-heeled for a Tesla to keep enough cash flowing to eventually reach the mass market goal.