Whitney Tilson’s email to investors discussing Tesla Inc (NASDAQ:TSLA) earnings; The bull and bear cases.
Q1 2021 hedge fund letters, conferences and more
Tesla Earnings
1) Tesla Inc (NASDAQ:TSLA) reported earnings after the close yesterday, and as usual, bulls and bears had plenty to feast on...
On the plus side, revenue was up a robust 74% year over year, driven primarily by sales of the Model 3. The car has soared to become the best-selling premium sedan in the world, as this chart from Tesla's investor slide deck shows:
Tesla also reported its seventh consecutive quarter of positive net income and fourth consecutive quarter of positive free cash flow (operating cash flow less capital expenditures). Lastly, the company has delivered (or is delivering) four factories around the world on time in Nevada, Shanghai, Texas, and Germany.
So what's the knock on Tesla? As one friend notes:
GAAP net income: $438 million
Subtract Bitcoin trading: $101 million
Subtract government subsidies (credits): $518 million
Total for Tesla's actual business: a loss of $181 million
How a company with a core business that consistently loses money is valued at over $700 billion is beyond me!
The Bull And Bear Cases
My analyst Kevin DeCamp responds:
Stock-based compensation was $614 million, $299 million of which was CEO Elon Musk's compensation plan, accounting for almost a third of what's left.
Tesla didn't produce a single Model X or Model S during the quarter, which was a $200 million hit to cost of goods sold ("COGS").
So if you take your $181 million loss and add back Musk's comp and the S and X COGS hit, you get over $300 million in adjusted net income. This is very impressive given that this was Tesla's seasonably weakest quarter, plus there was a severe chip shortage that shut down some competitors' factories (Tesla apparently pivoted quickly to new microcontrollers, while simultaneously developing firmware for new chips made by new suppliers).
Also, Tesla's gross margin was 22% excluding credits, up sequentially and year over year, even with no S and X sales.
Regulatory credits were higher than expected yes, but I love it! These don't come from us taxpayers, but from other automakers who can't produce enough electric vehicles ("EVs"). So once again, Tesla is eating legacy automakers' lunch – and making them pay for it!
Lastly, all of the key metrics are trending the right way, and I anticipate that the company's cash flows will enable it to continue growing at roughly 50% annually for the foreseeable future:
My take is unchanged: TSLA is a bad short... and a bad long!
Best regards,
Whitney
