Up 8x, What Really Changed For Tesla Stock In 2020?

by Trefis Team
-43.59%
Downside
1082
Market
610
Trefis
TSLA
Tesla Motors
Rate   |   votes   |   Share

Tesla (NASDAQ:TSLA) had a remarkable 2020, as its stock price soared by almost 8x, from levels of around $90 at the beginning of the year to over $700 currently. Although a good deal of the run-up was due to technical factors such as greater retail investor interest in the stock, the inclusion to the S&P 500 index, and a general pivot to higher-growth stocks through the Covid-19 recession, there were some meaningful fundamental developments that helped Tesla over the last year. Below, we take a look at five key developments that helped bolster the Tesla story last year.

Tesla Enters Fast-Growing Compact SUV Market

Tesla launched the Model Y compact SUV in early 2020 catering to one of the fastest-growing segments in the auto industry. While production is still ramping up, with sales thus far largely limited to the U.S., CEO Elon Musk expects the SUV to eventually be its largest selling model, outselling the Model 3, Model X, and Model S combined. Sales of the vehicles could see a nice bump in 2021, as production begins in Tesla’s Chinese factory.

Soaring Regulatory Credit Sales

Emission credit sales (up 2.5x year-over-year to about $1.2 billion over the first nine months of 2020) were a big driver of Tesla’s profitability over the last year. These sales, which are almost pure profit, were largely responsible for Automotive Gross margins rising to 26.4% year-to-date, from 20.6% last year. Although these Revenues aren’t likely sustainable in the long-run, they are serving as a fillip to drive profitability as it brings down costs and scales production. Moreover, the policy goals for clean energy of the incoming Biden administration could also bode well for Tesla and its regulatory credit business in the coming years. (related: How Regulatory Credits Impact Tesla’s Margins)

Cashing In On China

Tesla started production at its Shanghai facility towards the end of 2019, with the capacity to produce about 200k Model 3 vehicles per year. The production startup was well-timed, as automotive demand in China rebounded swiftly as the country was quick to control Covid-19, and Tesla’s cheaper, locally manufactured vehicles, which also benefit from subsidies resonated well with Chinese customers. Tesla Revenues from China grew 90% over the first 9 months of 2020. Tesla’s quick execution on the plant (production began less than a year after it broke ground) also served as an example that it can execute very quickly under the right circumstances, boding well for the company’s upcoming facilities in Germany and Texas.

Improving Software Capabilities

Tesla is clearly getting more confident about its self-driving software capabilities. The company increased pricing for its full self-driving (FSD) software upgrade from $7,000 to $8,000 in July and again bumped it up to $10,000 in October. Tesla is well ahead of rivals in the self-driving race. As of April 2020, the company said that its vehicles had driven a total of about 3 billion autonomous miles, compared to Google’s Waymo which has driven just about 20 million miles. (Just How Far Ahead Is Tesla In The Self-Driving Race?) Tesla intends to offer self-driving software subscriptions for 2021, a revenue model much sought after by technology investors, given the stable, recurring cash flows that it brings in.

Battery Advancements

Batteries are a big cost driver of electric vehicles (about 15% of the average price of a Tesla vehicle, per our estimates), and reducing battery costs and improving performance could help Tesla boost its margins.  (related: How Tesla’s Battery Costs Impact Its Gross Margins) During its first battery day event conducted in September, Tesla announced several enhancements, including the way batteries are designed, manufactured, and integrated into its vehicles, noting that it could eventually reduce costs by 56% per kilowatt-hour. The company also outlined plans to produce its own batteries and even mine its own lithium.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 120% return since 2016, versus about 60% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!