Tesla Posts Unexpected Fourth Consecutive Quarter of Profits

• Tesla, in its quarterly call with investors, reported adjusted net income of $104 million, beating analysts’ estimates and revealing that the company staged a quick recovery after posting an income of $16 million in the first quarter.
• Now, with four consecutive quarters of profits, Tesla can be considered for entry into the S&P 500, which could be monumental for the company.
• Tesla said in its earnings update that capacity of Model 3 and Model Y production at its Fremont plant in California is expected to increase from 400,000 to 500,000.

Tesla, amid uncertainty regarding how the peak of the pandemic would impact the automaker’s bottom line, posted a surprise adjusted net income of $104 million in the second quarter, its fourth straight quarter of profitability. Revenue of $5.2 billion this past quarter beat the first quarter of the year by 1 percent, but the result is down 4 percent compared to the previous year.

After months of rumors and speculation, Tesla CEO Elon Musk said during the company’s quarterly call with investors that Tesla will build its new plant in Austin, Texas, and that this will be the site where the upcoming Cybertruck is built. Tesla will increase production capacity at the Fremont, California, plant from 400,000 to 500,000 for the Model 3 and Model Y. Additionally, the company said that Model Y production is expected to begin at its factories in Germany and China in 2021.

“The Model Y is an integral part of Tesla’s future success, but it’s still too early to call it a winner (or loser) since much of the market’s behavior in the second quarter is not necessarily indicative of its future,” Jessica Caldwell, executive director of insights at Edmunds, said in a note. “The biggest challenge for Model Y continues to be attracting new consumers, which is a tall order in the short term due to financial uncertainties faced by many Americans and consumers around the world.”

Now, since the sum of Tesla’s last four quarters of profits are positive, the automaker can be considered for inclusion in the S&P 500, a move that would likely further boost its stock price. Tesla’s stock price has risen by 294 percent so far this year as of market open on July 23.

As the price of Tesla’s stock shot up, the automaker quickly surpassed legacy automakers in valuation, including Toyota which was until recently the most valuable car company in the world. Tesla is now worth nearly $300 billion while Ford and GM, for reference, were worth $27 billion and $37 billion, respectively.

As a result of Tesla’s skyrocketing stock price, Tesla CEO Elon Musk has qualified for a $2.1 billion payout. Musk receives no salary and is instead paid in stock options, payouts that come as the company reaches certain market capitalization, or valuation, levels. This most recent payout was activated after Tesla’s six-month average for its market cap was above $150 billion.

Joe Osha, analyst at JMP Securities, sees Tesla’s deliveries for the second quarter as evidence that the automaker can continue to grow exponentially. “If the company can manage 90,000 units during an extraordinarily challenging quarter, there is no reason that Tesla cannot be shipping 130,000 to 140,000 units a quarter by the end of the year in our opinion,” Osha said. “That puts Tesla on a trajectory to ship 757,000 units in 2021.” By 2025, Osha sees Tesla reaching $100 billion in revenue and delivering 2.5 million vehicles that year.

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