Tesla’s profit and Model Y arrival send stock price soaring past US$600

Tesla delivered a second straight quarter of blowout earnings and speedy execution, extending an unprecedented surge for its stock to the dismay of short sellers.

The record revenue Tesla reported on Wednesday beat estimates and carried the company to its fourth profit in the last six quarters. Chief Executive Officer Elon Musk again accelerated the introduction of the new Model Y crossover, saying deliveries will start by March, months earlier than initially planned.

Tesla soared as much as 14 per cent to almost $660 after the close of regular trading. The shares, which reclaimed the title of most-shorted American stock earlier this month, had already more than doubled since Musk reported a surprise profit in October and divulged the imminent opening of a new plant in China.

“The short story is eroding,” said Gene Munster, managing partner of the venture capital firm Loup Ventures. He credited Musk for becoming a “quiet assassin” and sees Tesla having a clearer path to profitability.

Musk has turned a corner from years of over-promising and under-delivering, vaulting Tesla past Volkswagen to become the second-most valuable automaker in the world, behind only Toyota Motor.

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Investors have rewarded him for building a commanding lead over rival manufacturers that have been slow to embrace an electric future and abandon the more than century-old internal-combustion engine.

The 48-year-old billionaire has thus far disproved predictions that Tesla will struggle to compete with the impending arrival of electric vehicles from established automakers. The Model 3 was the only EV consumers bought in significant volumes last year in the US. In Europe, it was the third-best seller among all models in December.

The Model Y, which Musk predicts will outsell all other Teslas combined, was initially scheduled to launch this fall. The company has moved up that date in each of its last two quarterly reports.

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“The Model Y timing is going to send the bulls falling off their chairs,” said Dan Ives, an analyst at Wedbush Securities who rates Tesla the equivalent of a hold. “This is a game-changing inflection quarter because of the guidance on delivery and profit.”

Free cash flow exceeded US$1 billion for the first time, bolstering Musk’s view that Tesla can sustain itself. He and Chief Financial Officer Zach Kirkhorn said they don’t plan to raise capital and will continue paying down debt over time.

The company projected it will deliver at least 500,000 vehicles this year, representing more than 35 per cent jump over 2019.

“What really matters is the outlook,” said Joe Osha, a JMP Securities analyst with the equivalent of a hold rating. “The stock is moving up because the unit outlook for 2020 is higher than consensus.”

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Tesla still faces challenges. Musk has significantly curtailed capital expenditures the last two years, and skeptics continue to question how the company will be able to deliver on his promises without spending significantly more on future products and a new plant planned for near Berlin.

CFO Kirkhorn declined to discuss Tesla’s budget for 2020 during an earnings call. The company spent just US$1.3 billion last year after initially forecasting as much as US$2.5 billion.

“At the end of it all, there’s a big sentiment shift,” said Ben Kallo, a Baird analyst with the equivalent of a hold rating on Tesla’s stock. “Eighteen months ago, this was a company going out of business, everyone said. Now, it’s a business people want to invest in. Institutional growth investors are starting to look at it as a real company that can make money.”