TSLA Tesla Inc

By Tim Higgins 

Investors began the year betting Tesla Inc. was best positioned to usher in a new era of electric vehicles. They are sticking with that wager despite concerns of a prolonged recession caused by the coronavirus pandemic that has forced the company to suspend production at its lone U.S. car plant.

Tesla's share price has returned to soaring heights, more than doubling since mid-March, helped in part by the company reporting a jump in first-quarter car deliveries earlier this month that was stronger than some expected. Sales in China surged even as the country's broader new-vehicle market collapsed. Registration data in the U.S. indicates strong demand in California before the pandemic hit hard at the end of March.

Investor enthusiasm has rebounded since local authorities forced Tesla to stop production on March 23 at its factory in Fremont, Calif., cutting off its ability to make vehicles for the U.S. and European markets. Tesla has said it wants to reopen the factory on May 4, though a local government order to close nonessential businesses was extended on Monday through the month of May and may derail that plan.

Investor sentiment will get tested anew on Wednesday when Chief Executive Elon Musk reports first-quarter financial results. "Given the market has been treating the stock as if it's immune from the coronavirus, I'm more curious as to how the market will react post earnings," David Whiston, an analyst for Morningstar Research Services, said. "I think that depends on how optimistic they are about reopening Fremont soon."

Wall Street's view is mixed on the impact the turmoil of recent weeks will have on Tesla's bottom line. Analysts surveyed by FactSet, on average, no longer expect the company to turn a profit in the first or second quarter. The company likely faced higher costs from lower production at Fremont in the final weeks of March and increasing production at its new Shanghai factory. Analysts expect Tesla to post an adjusted per-share loss of 27 cents, narrower than the $2.90 loss reported in the year-ago quarter, the survey shows. The adjusted figure excludes stock-based compensation.

Some analysts are expecting Mr. Musk to pull off a surprise, though. Brian Johnson, an analyst for Barclays who has long been critical of the company's high valuation, told investors that Tesla may be able to post an adjusted profit, in part from efficiency improvements and by wrangling cost savings out of suppliers. He predicted an adjusted profit of 61 cents a share for the first quarter.

The financial forecasts for Tesla are better than expectations for its car-making rivals. Ford Motor Co. this year is expected to post its first annual loss since 2008, and General Motors Co.'s profit in the first quarter is expected to fall 75%, according to analysts surveyed by FactSet.

Global new-vehicle sales are expected to have fallen 25% in the first quarter compared with a year ago, according to research firm LMC Automotive Ltd. GM's global deliveries may have fallen 22%, while Ford may have declined 19%, according to LMC data.

That contrasts with numbers for Tesla, which increased deliveries 40% in the same period, driven by its new Model 3 compact car. Its results were helped by sales in China, even though Tesla had to briefly shut down production at its plant there as the country dealt with the peak of its coronavirus outbreak. Operations have resumed, allowing Tesla to sell locally made cars that qualify for local subsidies and a tax exemption.

Tesla deliveries in China rose 63% in the first quarter compared with a year ago, according to LMC. The overall new-car market in China fell 42%. In March, Tesla delivered 10,160 vehicles in China, according to the China Passenger Car Association.

In the U.S., Tesla was helped by results in California, its largest market in the country, where registrations of its new vehicles in the first quarter jumped 4.5% compared with a year ago, while the overall industry fell 5%, according to research firm Dominion's Cross-Sell report.

Overall, Tesla delivered 88,400 cars in the first quarter, a result that slightly missed predictions by analysts surveyed by FactSet but exceeded forecasts of some Wall Street investors who expected the pandemic to have a bigger impact.

Still, the car company faces questions, such as its ability to meet a target of boosting deliveries to more than 500,000 vehicles and consumers' appetite for luxury cars during a global recession.

"We believe the stock is underestimating potential longer-term ramifications of a global recession," Ben Kallo, an analyst for Robert W. Baird & Co, said in a note to investors.

Analysts expect Tesla sales in the current quarter to be hard hit, falling 21% to 75,000 vehicles from a year ago, according to FactSet. And analysts on average no longer expect Tesla to meet its full-year delivery target, which would have represented a more than 36% increase from 2019.

That kind of uncertainty about demand isn't new for Mr. Musk. Tesla has repeatedly faced questions about the broader appetite for its cars. After disastrous first-quarter sales a year ago, shares in the company plummeted amid concern that Tesla demand had peaked. A year later, however, after deliveries overseas ramped up, investor confidence has roared back.

Mr. Musk's ambitious growth goals, the new China factory and the arrival of the Model Y sport-utility vehicle, which began delivering in the U.S. in March, have led many analysts to expect 2020 to be the year Tesla would turn its first annual profit.

Tesla, which often has been financially stretched, is navigating this current period in a better financial position than before. The company has enjoyed two sequential quarterly profits and, in February, Tesla raised more than $2 billion, giving Mr. Musk more of a cash cushion than in years past.

--Trefor Moss contributed to this article.

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

(END) Dow Jones Newswires

April 28, 2020 08:17 ET (12:17 GMT)

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