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)
Copyright (c) 2020 Dow Jones & Company, Inc.
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