Tesla Jumps After Beating On Sales And Earnings; Reports Record Free Cash Flow

Heading into today's Tesla earnings call, a question in this case posed by GLJ's Gordon Johnson, has emerged: do TSLA’s earnings tonight even matter? As Johnson responds, "not really. Why? Well, Consensus is calling for 31c/shr in EPS for TSLA in 3Q20. What’s key is ~16c/shr of this, or ~$200mn, is one-time credit sales which go away at the end of this year, and thus do not deserve a multiple… you put a multiple on recurring profit, not one-time profit. So TSLA's core biz of making cars appears set to do around 15c/shr in EPS, or ~60c/shr annualized. That's a P/E ratio of ~700x at TSLA’s stock price today. That means TSLA's EPS should grow at a 700% CAGR over the next (at least) 5yrs."

Johnson then asks "Is this realistic" and answers that "of the 505 companies in the S&P 500, NONE OF THEM have grown earnings at a 700% CAGR over the past five years. Conclusion? TSLA is grossly overvalued, and a 10-20c/shr beat/miss is meaningless. Stated differently, at a ~700x P/E ratio, TSLA is not being priced to perfection… it’s being priced to impossibility."

Why is this important? Because as the GLJ strategist continues, 2020 YTD EV sales in the EU (the world’s most competitive EV market) are up ~100% y/y, yet TSLA’s sales are down -14% y/y 2020 YTD." In other words, not only is TSLA losing share, but they aren’t seeing growth in the world’s most important EV market of Europe. Meanwhile, in China, which is supposed to be TSLA’s major growth market, TSLA’s sales have been below production in each of the past 3 months, and their NEV market share in China has fell from 20.1% in Mar. 2020 to 7.9% in Sep. 2020. And, all of this has occurred despite TSLA cutting the price of its cars ~13 times this year (the price of a made-in-China [“MIC”] Model 3 in China is down 30% YTD). In fact, TSLA is now shipping MIC Model 3 cars to the EU, showing demand in China simply doesn’t exist despite cutting the price of the car 30% YTD,

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