TSLA Tesla Inc

By Tim Higgins 

Tesla Inc. made good on Chief Executive Elon Musk's promise of boosting production and delivering at least 360,000 electric vehicles in 2019, sending shares to new heights and increasing expectations for this year.

But the road ahead for the Silicon Valley auto maker comes with a familiar challenge: execution.

It also takes Tesla down a path in which its fortunes rest, to an unprecedented degree, on how it performs overseas -- particularly in China, the electric vehicle maker's top foreign market.

The company has begun making local deliveries of China-made Model 3 compact cars after constructing a factory there in a blazing fast year. And it is gearing up to start production of a new Model Y compact sport-utility vehicle later this year.

"2020 represents a pivotal year for Musk & Co., as ultimately this will be the year the bulls have been waiting for with China coming on board and Musk's grand [electric-vehicle] vision starts to potentially take hold," Dan Ives, an analyst for Wedbush Securities, said Friday in a note to investors. "China remains the major swing factor."

Shares posted a nearly 5.5% gain during trading Friday after Tesla said it delivered 112,000 electric vehicles in the final three months of the year. That was up 23% from a year earlier and exceeded Wall Street expectations for 106,000 deliveries.

Tesla's valuation rose to more than $80 billion, putting it within reach of Volkswagen AG, the world's second-largest auto maker by market value.

The company's stock has been on a tear since closing at last year's low of $178.97 in June, when investors worried about the company's ability to pull off Mr. Musk's ambitious plans. Mr. Musk had promised deliveries of between 360,000 and 400,000 last year, a record milestone that looked hard to meet after a disappointing start to the year.

Sales were hurt in the first quarter amid a phaseout of U.S. tax credits for buyers, which effectively increased the cost of Tesla's cars, and challenges associated with taking the Model 3 overseas for the first time. The slow start raised concerns about whether demand for Tesla's vehicles in the U.S. had peaked.

Tesla needed to deliver at least 104,800 vehicles in the final quarter, or slightly more vehicles than the company delivered in all of 2017. It beat that goal handsomely.

Deliveries of the mass-model Model 3 continued upward momentum from the third to the fourth quarter, rising 16% to 92,500 in the final three months. That was a 47% increase from the final quarter of 2018.

In total, Tesla delivered 367,500 cars and sport-utility vehicles last year.

Tesla's strong finish was aided by customers looking to take advantage of the U.S. tax credit before it went to zero on Jan. 1, said Garrett Nelson, an analyst for CFRA Research. "We think questions remain about first-half results," he wrote in a note to investors.

Mr. Musk's history of missed forecasts had some doubting he'd be able to achieve his goals for 2019, which represented a step down from loftier ambitions pronounced earlier. He had once promised to make 500,000 in 2018, with Tesla reaching the one million vehicles level in 2020.

Attention turns next to how the record fourth-quarter deliveries affect the company's bottom line. Tesla won't disclose for several weeks how much money it made on the cars it delivered in the fourth quarter. Analysts surveyed by FactSet, on average, expect a profit for the most recent quarter, though they expect Tesla's results will show it remained in the red for all of 2019.

The company has yet to turn an annual profit. It has fueled its expansion through stock and debt offerings. Analysts surveyed by FactSet project this to be the first year Tesla is profitable.

On Friday, Tesla didn't break out deliveries by region or country. It will later reveal revenue by its top markets, including the U.S., its No. 1, and No. 2 of China. Revenue in the U.S. had declined in the third quarter compared with a year ago, demonstrating the growing importance of markets such as China.

Tesla on Friday said it made almost 1,000 salable vehicles at its new factory in Shanghai, which began trial production runs in October. The company said local battery-pack production for its electric cars began in late December.

The auto maker said separately that it was lowering the starting price of its China-made Model 3 to 323,800 yuan ($46,445) from 355,800 yuan. After local subsidies, customers can get the car for 299,050 yuan.

The first 15 China-made cars were handed over to employee customers this week. Tesla broke ground on the Shanghai factory, where it aims to make 3,000 cars a week, almost a year ago.

Tesla's change of fortune has been especially painful for investors who have bet against the auto maker by short selling its stock. Those bears still see big challenges ahead for the company. They point to a slowing car market in China, the likelihood that the elimination of U.S. tax credits for Tesla buyers will dent demand, and Mr. Musk's record of falling short on his past promises.

Tesla had a strong finish to 2018, too, only to have a first half in 2019 that rattled investors.

Tesla needs to begin generating consistent free cash flow and pay down debt, said David Whiston, an analyst for Morningstar Research Services. "If they do that for a few straight quarters, the stock could go far higher than it is now," he said.

But he added that Tesla's rise also adds risk to the share price: "The downside to a stock rocketing upward is the slightest bit of bad news could cause an abrupt fall, but no one ever cares about that risk until it actually happens."

Write to Tim Higgins at Tim.Higgins@WSJ.com

(END) Dow Jones Newswires

January 03, 2020 16:21 ET (21:21 GMT)

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