With the global economy progressively assuming a clean-energy stance, the biggest EV manufacturer in the world witnessed triple-digit gains in 2020. Despite a global-pandemic-driven business shutdown and economic slump leading to a decline in global EV sales in the first quarter of 2020, TSLA managed to keep boosting its monthly sales numbers. In fact, TSLA’s impressive growth, profitability, and stock market performance led to its inclusion in the S&P 500 index last December.
TSLA’s total vehicle delivery (subject to operating lease accounting) increased 8% year-over-year in the fourth quarter ended December 31, 2020. Its Model X sales rose 11% year-over-year, while Model Y sales grew 7% over this period. In fiscal 2020, the company produced more than 500,000 vehicles and sold 499,550 units.
While many analysts explained TSLA’s enormous price gains as part of an EV bubble, the company’s impressive fundamental growth justifies this higher valuation we believe. As the global automotive industry is transitioning, TSLA has plenty of upside left. The stock gained 723.7% over the past year. This, combined with several other factors, has helped it earn a “Strong Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates TSLA:
Trade Grade: A
TSLA is currently trading above its 50-day and 200-day moving averages of $603.44 and $421.62, respectively, indicating a golden-cross uptrend. The stock gained 75.8% over the past three months, reflecting solid short-term bullishness.
TSLA reported impressive results for the third quarter ended September 30, 020, surpassing analyst expectations. Its revenue has increased 39.2% year-over-year to $8.77 billion, while gross profit has risen 73.1% versus the same period last year to $2.06 billion. Its net income and EPS grew 131.5% and 68.8%, respectively.
TSLA is now planning to launch three new electric vehicles soon, including the Tesla Cybertruck and two electric cars. It plans to invest up to $12 billion in electric vehicles and battery factories over the next two years, with manufacturing facilities on three continents. TSLA raised $4.97 billion through an at-the-market stock offering in September to fund its capital-intensive projects soon. The company is currently working on developing fully autonomous driving feature, which is expected to be integrated in TSLA vehicles in some jurisdictions this year.
In late December, TSLA signed a pricing agreement with Panasonic for lithium-ion battery cells. Under the agreement, Panasonic’s battery products, which have applications in TSLA’s Model X and Y, are to be sold at a contractual price until March 2021.
Moreover, TSLA is scheduled to launch its products in India in the first half of this year. With a huge population and market base, the expansion is expected to ramp up TSLA’s profits. The company also has plans to open a new battery system project in Australia, which has been dubbed the ‘Victorian Big Battery’. In this regard, TSLA partnered with French renewable company Neoen to develop 300/450 MWh grid scale project in South Australia.
After dominating the electric vehicle industry, TSLA is currently venturing into other sectors. The company’s prior acquisition of Solar city in 2016 has given it a smooth entry point into the solar panel manufacturing industry. CEO Elon Musk expects this segment to become the next “killer product”. Following a news release regarding Pfizer and BioNTech COVID-19 vaccine development, Musk confirmed that TSLA became the manufacturing partner for German biotech firm CureVac and is currently in the process of developing RNA micro-factories and version 3 vaccine printers.
Buy & Hold Grade: A
In terms of proximity to 52-week high, which is a key factor that our Buy & Hold Grade takes considers , TSLA is well-positioned. It is currently trading just 2% below its 52-week high of $744.49, which it hit yesterday.
TSLA has gained 1059.8% over the past three years. This can be attributed to its impressive earnings and revenue growth, which have driven the stock to record highs. The company’s revenues have increased at a CAGR of 37.9% over the past three years, while EBITDA grew at a CAGR of 165.7% over this period. TSLA’s tangible book value has risen at a CAGR of 53.4% over the past three years.
TSLA’s dominance in the EV market has led to its impressive growth. Also, TSLA has enjoyed a degree of monopoly in the budding industry in the past because the biggest automobile companies in the U.S. have been slow t to join the EV race. Its strategic production facilities located across areas with high potential demand have allowed the company to keep its production costs relatively low.
Peer Grade: A
TSLA is currently ranked #1 of 35 stocks in the Auto & Vehicle Manufacturers industry. Other popular stocks in this space are Toyota Motor Corporation (TM), Honda Motor Company, Ltd. (HMC) and Ferrari N.V. (RACE).
TM and RACE have gained 8.9% and 36.2%, respectively, over the past year, while HMC declined marginally. This compares to TSLA’s 723.7% returns over this period.
Industry Rank: A
The Auto & Vehicle Manufacturers industry is ranked #4 of 123 industries in the StockNews.com universe. This industry is riding the clean energy wave , as demand for EVs witness exponential growth worldwide. Given the higher efficiency of EVs and lower maintenance cost in the long run, EVs are beginning to be preferred over traditional-fuel vehicles.
Also, given the technological advancement in the overall EV industry, transition from gasoline cars to battery vehicles is expected to cost less versus other industries’ conversion to carbon neutrality. As a result, most economies are focused on kick starting any country-wide industrial transformation with the automobile industry.
Overall POWR Rating: A (Strong Buy)
TSLA is rated “Strong Buy” due to solid short and long-term bullishness, impressive financials, and underlying industry strength, as determined by the four components of our overall POWR Rating.
TSLA’s record deliveries in the fourth quarter of 2020 reflect the company’s dominance in the EV space. With California and Massachusetts banning the sale of gasoline-powered vehicles from 2035, following a similar ban in the U.K. we think TSLA is well-positioned to multiply its sales in the future.
TSLA has an average broker rating of 1.91, indicating favorable analyst sentiment. Of 32 Wall Street analysts that rated the stock, 8 rated it “Strong Buy.” The consensus EPS estimate of $0.89 for the fourth quarter ended December 31, 2020 indicates a 117.1% improvement year-over-year. The company has an impressive earnings surprise history as well; it beat the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $10.09 billion for the about-to-be-reported quarter indicates a 36.7% rise from the same period last year.
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TSLA shares were trading at $732.79 per share on Tuesday afternoon, up $3.02 (+0.41%). Year-to-date, TSLA has gained 3.84%, versus a -0.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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