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Tesla $TSLA Q2 2020 results: Recurring profit, beats Wall St. as business matures, S&P 500 in focus

Tesla Model 3 production line in Gigafactory 3, Shanghai, China. (Credit: Tesla)

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Tesla’s (NASDAQ:TSLA) second-quarter earnings for 2020 saw the electric car maker post $6.036 billion in revenue, beating estimates from Wall Street. The results, which were discussed at length in an Update Letter, were released after the closing bell on Wednesday, July 22.

Tesla’s second quarter was hit by the pandemic. Yet despite the ongoing pressures from the coronavirus outbreak, Tesla managed to deliver over 90,000 vehicles in Q2, thanks to the Model Y building momentum in the United States and the Model 3 hitting its stride in China. 

The following are the key points in Tesla’s Q2 2020 Update Letter.

REVENUE

Tesla reported revenue of $6.036 billion for the first quarter, beating Wall Street’s expectations. In contrast, Wall St. expected Tesla to report revenue of $5.146 billion, less than the $5.985 billion that the company reported in the first quarter. In comparison, Estimize, a crowdsourced platform that aggregates estimates from analysts, executives, fund managers, and academics, is a bit more optimistic, expected Tesla to post a revenue of $5.443 billion. 

PROFITABILITY

Tesla reported a GAAP operating income of $327 million; 5.4% operating margin in the second quarter. A $104 million GAAP net income and $451 million non-GAAP net income was also reported by the company. With this, Tesla has achieved four quarters of profitability. 

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EARNINGS

Tesla shareholders saw non-GAAP earnings per share of $2.18 in the second quarter. In comparison, Wall Street expected Tesla to report a loss of $0.14 per share. Interestingly enough, Estimize’s numbers stand opposite to Wall Street, with the platform expecting Tesla to post a profit of $0.19 per share. 

CASH

Tesla posted a $535 million increase in its cash and cash equivalents in the second quarter to $8.6B, while generating positive free cash flow of $418M. These, according to the electric car maker, will allow it to take on the second half of 2020 with a stronger stance.

“Our business has shown strong resilience during these unprecedented times. Despite the closure of our main factory in Fremont for nearly half the quarter, we posted our fourth sequential GAAP profit in Q2 2020 while generating positive free cash flow of $420M,” Tesla wrote.

KEY HIGHLIGHTS

  • Next US Gigafactory site selected; preparations underway
  • Increased Model S range to 402 miles (EPA)
  • Model Y and China-made Model 3 production rates continue to increase
  • 500,000 target unit deliveries for 2020 reaffirmed
  • Tesla Semi deliveries planned for 2021

With such results, Tesla is poised to qualify for inclusion into the S&P 500, which requires a company to post four quarters of profit. The potential inclusion of Tesla into the index stands to benefit TSLA stock, as funds that are tracking and benchmarking against the S&P 500 would likely have to purchase shares. Such a scenario would likely push Tesla to new heights.

The results of Tesla’s second quarter earnings have been received enthusiastically by TSLA shareholders. As of writing, TSLA stock is trading 5.37% at $1,677.82 per share. 

Tesla’s Q2 2020 Update Letter could be accessed below.

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Q2’20 Update by Simon Alvarez on Scribd

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.

Simon is an experienced automotive reporter with a passion for electric cars and clean energy. Fascinated by the world envisioned by Elon Musk, he hopes to make it to Mars (at least as a tourist) someday. For stories or tips--or even to just say a simple hello--send a message to his email, simon@teslarati.com or his handle on X, @ResidentSponge.

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Tesla tailwinds could drive momentum-filled finish to 2025: analyst

Tesla is heading toward some momentum to finish out the year, one Wall Street firm believes.

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Credit: @heydave7/X

Tesla has some tailwinds that could drive it toward a momentum-filled finish to the year, one Wall Street analyst is predicting.

The tailwinds are joined by some minor risks that have impacted the broader electric vehicle market, but overall, this firm believes Tesla has many catalysts moving forward.

Emmanuel Rosner of Wolfe Research believes that Tesla has plenty of things that could drive the stock upward as we approach the end of the year. With Q3 well underway, Tesla has about five months of catalysts to rely on to erase the roughly 18 percent drop in stock price it has so far this year.

At first glance, it is easy to see the things that would have investors bullish on Tesla for the rest of 2025 and even beyond. Initially, the Robotaxi launch and expansion, which spread to Northern California last night, provide potentially huge tailwinds for the company moving forward.

Tesla expands Robotaxi operation to California’s Bay Area

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Along with that, and slightly related, are the advancements in Full Self-Driving that the company has made over the past few months.

This includes the potential launch of the FSD suite in regions like Europe and Australia, where the company believes it will make some progress on regulatory approval in the coming months.

Finally, Wolfe says the company’s Optimus project, which is expected to enter scale production sometime next year, is the third catalyst for Tesla moving forward.

With these three projects in motion, Tesla truly can begin to work on rebounding from a rough 2025 on the market.

Rosner writes:

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“This name trades more around the narrative than the numbers. And net-net, we tactically see an improving narrative from here. Tesla has several catalysts coming up w/r/t FSD and Robotaxi, including an expansion of their AV service into several new U.S. markets (San Francisco, Nevada, Arizona, Florida, etc.). The company plans to unlock hands-free/eyes-off autonomy for FSD owners in select U.S. locations by YE25. Supervised FSD in China and Europe is expected to launch over the next ~12 months. And, Optimus is expected to enter scale production in 2026.”

Tesla is currently trading around $310 at around 3:20 p.m. on the East Coast.

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Tesla Robotaxi execution should lead to valuation ‘far exceeding current levels’: analyst

RBC Capital bumped its price target on Tesla stock slightly from $319 to $325.

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Credit: @TerrapinTerpene/X

Tesla’s Robotaxi platform is the primary focus for the automaker currently, and based on what has been outlined by the company as goals for the project, one firm is saying that the company’s valuation should “far exceed even current levels.”

The Robotaxi is a self-driving ride-hailing service that Tesla plans to implement in current and future vehicle builds. CEO Elon Musk and other executives have said that “the vast majority of the Tesla fleet that we’ve made is capable of being a Robotaxi,” thanks to its development of Over-the-Air software updates that increase the capability of the vehicle with a simple download.

Currently, the Robotaxi platform is only active in a portion of Austin, Texas, but Tesla is expanding to other markets, including California, Nevada, Arizona, and Florida. California will be the next market to open its doors to the Tesla Robotaxi platform.

But the name of the game is execution, and that’s what Tesla is aiming for in a timely fashion. If it can come through on all of its current goals, its valuation could explode, and one firm is holding steady on that narrative as Tesla continues to work toward expanding Robotaxi.

On Tuesday, RBC Capital analysts bumped their price target on Tesla shares (NASDAQ: TSLA) to $325 from $319, primarily due to the Robotaxi expansion and its success:

“Should Tesla be successful on all of its goals, its valuation could far exceed even current levels. The Austin Robotaxi launch has been better than many feared, and the company is looking to expand in more cities.”

There are some risks to Tesla’s narrative, but they fall outside the scope of what the company can control. In relation to Robotaxi, regulatory hurdles remain. Some regions may be slower than others to give Tesla the proper licensing to operate in their jurisdiction. This could slow the pace of Robotaxi expansion, bringing some overhang to the story.

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Additionally, Tesla is fending off narratives of slowing demand, and the White House’s decision to revoke the $7,500 EV tax credit from consumers could temper sales past Q3.

Nevertheless, Robotaxi is where Tesla’s true value seems to be focused. Successfully launching a driverless ride-sharing platform is where the company is putting all of its eggs, and revolutionizing passenger travel is where the focus lies.

RBC Capital’s note continued:

“Regulatory hurdles remain, however. Further, we expect the end of IRA credits and high levels of used EV inventory to pressure the auto business for the next several quarters.”

The slight price target bump puts RBC Capital’s expectations near where the stock is trading, as it is currently priced at around $320 at 9:54 a.m. on the East Coast.

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Elon Musk shares details on Tesla AI6 production deal with Samsung

Tesla is already laying the groundwork for the ramp of its next-generation products.

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tesla-supercomputer-pre-dojo
Credit: Tim Zaman/Twitter

Elon Musk has provided some details about Tesla’s AI6 production deal with South Korean tech giant Samsung. As per Musk, Samsung’s upcoming Texas fabrication facility will be dedicated to the production of Tesla’s AI6 chip.

Musk’s update suggests that Tesla is already laying the groundwork for the ramp of its next-generation products like the Cybercab and Optimus.

Samsung AI6 production reports

On Sunday, Bloomberg News claimed that Samsung will be producing semiconductors for Tesla in a $16.5 billion deal. As per the report, Samsung is currently producing Tesla’s AI4 chip, and the deal will help the South Korean tech giant gain some ground back from competitors in the semiconductor market.

Elon Musk confirmed the news on X, stating that the $16.5 billion is actually just the bare minimum. As per Musk, the deal with Samsung will likely be “much more than that.” And in a later comment, Musk clarified that the actual output of Samsung’s Tesla AI6 plant will “likely be several times higher” than what has been reported.

Musk shared a critical detail that would likely allow Samsung to maximize its AI6 output. “Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency. This is a critical point, as I will walk the line personally to accelerate the pace of progress. And the fab is conveniently located not far from my house,” Musk wrote in his post.

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Elon Musk on AI5 and AI6

Tesla currently produces vehicles with its AI4 chip, which is produced by Samsung. As per the CEO, Tesla’s AI5 chip, which just finished its design, will be produced by TSMC. The AI5 chip will be produced initially in Taiwan, and then in Arizona, the CEO noted.

Elon Musk’s comments about AI6 and Samsung’s output suggest that Tesla is really preparing to enter a stage in its growth that involves production at a scale that’s never been seen before. Tesla’s speed is quite notable, though it seems safe to assume that the actual rollout of AI6 will still be a few years away. 

In a few years, Tesla will probably be mass producing the Cybercab and Optimus, as well as more affordable vehicles that will likely see more adoption from mainstream customers. This means that Samsung’s AI6 ramp will likely be just in time to support Tesla’s outputs for its Optimus bots, its Cybercabs, and its mass market affordable cars.

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