Morningstar

Tesla's Balance Sheet Improves Cash Holdings

Tesla's results were slightly ahead of expectations and we still see shares as overvalued.

Securities In This Article
Tesla Inc
(TSLA)

Tesla TSLA reported a fourth quarter net profit of $139.5 million, less than the $311.5 million reported for third quarter, as guided by CEO Elon Musk in a recent 8-K filing announcing a 7% headcount reduction. After factoring in 2019 guidance of less capital expenditure than we were modeling ($2.5 billion versus $4 billion), and guidance of a less than 10% increase in operating expenses, less Model S and X volume in 2019 than we were modeling, and a higher share count, we see no reason to change our fair value estimate. We will revisit our valuation next month after incorporating the 10-K into our model, which could result in a modest increase to our fair value estimate.

Adjusted diluted EPS for the quarter of $1.93 missed consensus of $2.19 while revenue grew 5.9% from third quarter to $7.2 billion, slightly beating consensus. Fourth quarter deliveries more than tripled year over year to 90,966 and also rose 8.6% from third quarter. Compared with third quarter, Model S and X deliveries were about flat so Model 3 led the way and we expect it will continue to do so in 2019. Tesla guides for all vehicles delivered in 2019 of 360,000-400,000 whereas we had been modeling 450,000, but Musk made comments on the call suggesting the company can do better than 400,000. Musk also talked about the pickup truck possibly being unveiled this summer and guessed the standard range Model 3 of about 220 miles will be available mid-2019. Musk wisely constantly stressed that reducing costs and getting the Shanghai Gigafactory up and running this year are critical inputs to selling affordable vehicles at a profit. The China factory is guided to initially make 3,000 Model 3s a week.

We were pleased to see GAAP free cash flow of $909.6 million in the quarter, up from third quarter's $881 million. This cash flow enabled Tesla to finish 2018 with $3.7 billion in cash and we have no concerns about the company paying off its $920 million convertible bonds fully in cash in March.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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