Tesla (Nasdaq: TSLA) was the original "meme" stock, driven higher by its exciting product, charismatic CEO, and a cult following. It ended in 2020 as one of the best-performing stocks with a 692% gain. Given this, the company reached a valuation of $800 billion.
The company's bull case rests on it becoming the dominant company in electric cars, self-driving, and batteries. Of course, the company is years away from reaching this goal, so its earnings reports are important measures to confirm that it remains on this trajectory.
Inside the Numbers
Tesla's Q4 results were mixed as earnings fell short of expectations but revenue topped. Earnings per share was $0.80 per share vs $1.03 expected. Revenue was $10.74 billion which beat analysts' expectations of $10.4 billion.
However, the most important takeaway was the company affirming that it would increase production by 50% next year. In the conference call, CEO Elon Musk said, "Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries."
In 2020, Tesla delivered just under 500,000 vehicles and is targeting 750,000 for 2021 which is slightly above expectations of 722,000.
This would mark an acceleration from last year due to two new factories coming online and new versions of the Model S and X. The company anticipates that the new Model S will be available in February. The company also plans to offer its full self-driving option available as a subscription package sometime this year.
Gross margins continue to improve and hit 19.2%. Capital expenditures were slightly lower at $1.15 billion. Possibly, the biggest surprise was a positive free cash flow of $2.8 billion for the full year which is more than double last year's $1.08 billion.
Stock Price Outlook
Tesla's stock price is insanely difficult to value. By any rational valuation measure, it's overvalued. Yet, the last decade has shown us that in tech, there tends to only be one winner in each category. And, Tesla has an early and a leading position in multiple industries that will be worth $1 trillion+. In terms of electric cars and self-driving, it has a headstart and is the closest to actually commercializing its technology.
If it's successful in one, then its current valuation is more than justified. If it can win two categories, then it's likely going to be the most valuable company in the world. However, its competitors are not going to cede these opportunities to Tesla without a fight, so it's also possible that it falls short in all these categories which would validate the bears' concerns about the stock.