14 January 2020 by jbchevrel
Tesla, Inc. (TSLA) CDS has notably outperformed, with the 5y contract coming from 700bp in Q219 to now less than 200bp. We close the mid (European close) at 192bp today on the 5y, making the name just ~30bp above Ford Co. Post Q419 deliveries, analysts raised their stock price targets along with their future delivery forecasts. Indeed, deliveries finished the year strong: Q419 deliveries of 112.0k (+15.2% q/ q, +23.1% y/y) were above the consensus of 106k and brought full-year deliveries to 368k units. In parallel, the shares have more than doubled since mid-October, helped by a surprise Q319 profit, strong deliveries for Q419, the quick construction of the China plant and a general improvement in sentiment (shorts being burnt). On the negative side of things, some analysts still think that the larger part of potential demand for TSLA products is at a price point where TSLA is not profitable. TSLA has begun to offer some of these price points, but it has the potential to be dilutive to margins, so the medium term impact on profit is mitigated. With the fleet of Tesla cars in operation much larger than prior, the number of issues in the fleet is rising, so if the investment in service does not keep pace with the fleet size, TSLA brand image, a big asset, could be damaged. Potential execution risk sources are still multiple (Chinese/European plants, Model Y). The focus will now shift to Tesla’s Q419 earnings report. The release will come on January 29. At that point, market players will be looking at auto gross margins (consensus 20%), FCF (consensus $300m) and 2020 delivery guidance (consensus 450k).