Gene Munster from Loup Ventures estimated that Tesla (NASDAQ: TSLA) had a 60% shot at being added to the S&P 500 by the end of the year. He made his bold prediction after TSLA’s Q1 2020 Earnings Call when the company reported a surprising profit with US$1.24 EPS and US$5.9 billion in revenue.
Gene Munster appeared on CNBC, which covered the surge in TSLA’s stock after the company’s Q1 2020 Earnings Call. Tesla reported US$8.1 billion cash-on-hand, an auto gross margin of 25.5%, profit guidance was on hold, and free cash flow was -US$895 million, summarized Phil LeBeau in the segment.
Gene Munster provided his take on TSLA stock’s 9% move since the Earnings Call—at that time. Munster said that Tesla could go up higher, considering future mobility in transportation. “I think this company is fundamentally changing how people move around,” said the managing partner of Loup Ventures.
ARK Invest may agree with Gene Munster’s assessment of TSLA. Cathie Wood observed that Tesla was taking a considerable share in the auto industry during a time when most legacy automakers are suffering. She noted that Tesla sales were up 40% in the first quarter, whereas traditional automaker sales were down by 35%, reported Tesmanian previously. Tesla’s Q1 2020 report reflects the company’s growth and possible trajectory in the future.
Gene Munster enumerated his three takeaways from Tesla’s recent Earnings Call, which he believed were the reasons TSLA stocks surged. He addressed Tesla’s negative free cash flow first. Munster reasoned that Tesla’s cash flow was -US$895 million because of channel inventory build. In other words, TSLA wasn’t able to deliver at the end of the quarter because of the lockdowns caused by the pandemic.
The Fremont factory’s shutdown occurred just when Tesla started delivering the Model Y. Tesla tried to deliver as many Model Y units as possible while keeping customers and employees safe through contactless deliveries. However, Model Y deliveries may have been hampered by lockdown orders throughout the United States.
The second takeaway Munster listed was that Tesla cashed in its EV tax credits. He explained some auto companies that weren’t producing enough EVs paid Tesla to get through regulatory hoops. “Those tax credit triggered a profit in the quarter,” said Munster. He noted that Q1 2020 was the fourth consecutive quarter with a profit for Tesla. Munster explained that one of the hurdles a company needs to pass to get into the S&P 500 was to deliver four consecutive quarters with profit. As such, the Loup Ventures analyst said that Tesla was likely to be added to the S&P 500.
Lastly, Munster talked about Tesla’s delivery guidance of 500,000 deliveries by the end of 2020. LeBeau had observed that Tesla did not reiterate or mention its guidance at all during the latest Earnings Call.
Munster stated that there was a fine line between delivering 500,000 vehicles and producing them. He predicted that Tesla would probably not meet its 500k guidance by the end of the year, but it could still deliver more than Wall Street’s estimates of 403,000 deliveries.
Munster ended his analysis with some advice for investors—and maybe even analysts. He warned that comparing a Tesla to a traditional car was a trap and advised people to think of the EV as tech, just as one of the segment’s hosts said earlier in the segment. Guy Adami, a trader who was also in the CNBC segment, stated that going against Tesla at this point might be risky.
“I clearly have no clue when it comes to Tesla. So if you’ve been long in the stock, God Bless you, you know, see what happens at all-time highs. It’s become one of those things where you just can’t get in the way, so I’m not gonna,” Adami remarked.
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