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22 Oct 2020
3 min read

Tesla Earnings Rise: What’s Driving Growth?

Tesla Earnings Rise: What’s Driving Growth?

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Key Takeaways:

  • Tesla releases earnings report with 5th consecutive quarterly profit
  • Rising COVID-19 cases cause uncertainty in the stock market

Tesla Stock Gains 3% in After-Hours

Tesla delivered its earnings report yesterday after the closing bell. The report proved that demand is picking up overseas as the auto maker hits a fifth consecutive quarterly profit.

The Model 3 that is now being produced in Shanghai has recorded strong sales in China. However, a bigger driver for the strong quarter, is not the selling of cars for profit, but the regulatory credit sales to industry peers. If it weren’t for them, the giant car maker would not have scored a profit in 3Q20 or 2Q for that matter.

Tesla sells zero-emission credits from governments to auto makers. Previously, the buyers were kept secret, but recently documents were released and it was made known that among the purchasers are companies like General Motors and Fiat Chrysler Automobiles.

Over USD 2bn of profits have come to Tesla from the selling of regulatory credits to other automakers since 2012. In the recent quarter Tesla was buoyed by USD 397m in credit sales. Thus, the company produced a net profit of USD 331m for the quarter as top line climbed to USD 8.77bn. For comparison, 2Q20 brought in USD 428m in regulatory credit sales with a revenue of USD 6.04bn.

According to Tesla CEO Elon Musk, third quarter of 2020 is the best quarter ever. The important milestone marks the fifth consecutive quarter of GAAP profitability. Tesla shares climbed over 3% in after-hours trading on Wednesday reaching a high of $433.88.

Expectations are for Tesla to try and achieve its target of 500,000 sold card this year. Tesla delivered 88,400 vehicles in 1Q20, 90,650 in 2Q20 and 139,300 in 3Q20.

Tracking the stock movement for the quarter, Tesla was arguably one of the most traded stocks in the market. In August the company announced a 5-1 stock split that made shares more affordable for the average investor. By growing the number of shares Tesla continued to be a desired asset for short sellers looking to profit by the depreciation of the stock.

The consistent run of profitable quarters is urging regulators to seriously consider adding the company to the blue-chip S&P500 index.

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