Are Tesla Investors Missing The Point?

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Tesla (NASDAQ: TSLA)  stock rallied by close to 24% since it published its Q3 2019 results last week, posting a surprise profit. However, taking a closer look at the underlying numbers and comparing them with the previous quarter (Q2 2019) and the year-ago quarter (Q3 2018), we believe that the markets could be overlooking some negatives in the earnings release.

View our interactive dashboard analysis on Are Tesla Investors Overlooking Some Key Trends In Q3 Earnings?

Tesla reported positive Operating Cash Flow in Q2 as well at $864 million, versus only $756 million in Q3, but investors didn’t care to jump and buy TSLA at that time

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  • Tesla’s operating cash flows were actually lower on a sequential and year-over-year (YoY) basis, partly due to an increase in Net Operating Assets ( which includes Accounts Receivable net of Accounts Payable, Inventory, Prepaid Expenses, and other working capital items)

Tesla’s Free Cash Flow was also positive, at around $614 million in Q2, compared to $371 million in Q3. Investors still didn’t jump with joy in Q2, but in Q3 they bought the stock fast until it spiked ~20%.

  • Tesla’s Free Cash Flow, calculated as Net Income less CapEx has actually trended lower sequentially as well as YoY, due to lower Operating Cash Flows as well as sequentially higher CapEx.

Tesla’s Earnings need to be subject to more scrutiny, with declining D&A expenses, and higher one-off revenue items

  • A bulk of Tesla’s earnings improvement has come from lower Cost Of Revenue for the auto business, which benefited from better cost absorption and lower labor intensity for production.
  • Interestingly, Tesla also saw lower depreciation expenses (down 13% sequentially and 5% YoY), which is odd for a company with ambitious growth plans.
  • Tesla did not recognize any “Restructuring and Other” charges over Q3. In Q2, it recognized $117 million in charges, contributing to a significant earnings miss.

Tesla’s Automotive Revenues are almost flat sequentially & down YoY

For more information on Tesla’s revenues, view our interactive dashboard analysis.

And, for more Trefis analysis, view our interactive dashboard analysis Deep-Dive X-Ray: What Drove Tesla’s Q3 Profits & Which Parts Are Sustainable?

 

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