Tesla share price is up over 5% premarket as the electric car manufacturer announced its Q2 2020 earnings after the market closed yesterday. The company posted its fourth consecutive quarterly profit – a condition for the inclusion in the S&P500 index. Investors chased Tesla share price higher for the past month or so on expectations that it will become suitable for S&P500 inclusion.
But a close look at Tesla Q2 2020 earnings reveals a mixed picture. Here are the good and the bad ones.
Positives for Tesla Share Price
Solid free cash flow of $418 million during the quarter fuels investors’ expectations that the company has resources to meet its exponential growth. Moreover, the automotive margin remained constant when compared with Q1 2020, around 25% – a sign that the company consolidates margin as it handles the business model appropriately.
With a promise of delivering over 500k vehicles in 2020 and starts to deliver Tesla Semi in 2021, it is no wonder that Tesla share price popped higher in the after hours. Coupled with the 4th consecutive profitable quarter, and the ingredients exist for an extended move higher.
Negatives for Tesla Price
Not everything in this report is positive for Tesla price. Depending on the time horizon for investment, some details are worrying for any bullish perspective.
First, a big chunk of Tesla revenue in Q2 2020 came from selling over $400 million emissions credit to peer companies – nothing to do with the main business activity. Second, accounts receivable grew while revenue shrank – a problem for any company that demands payment before delivery. Third, revenue is down 5%, production/deliveries are down, and even cash flow is down over 30%.
If anything, bears may argue that the company is shrinking, not growing.
Tesla Price Technical Analysis
Despite the bearish fundamental arguments, Tesla share price closed the other day in a pennant formation. A bullish continuation pattern, it has a measured move of about $800 projected from the upper edge of the pennant.
Considering the highest premarket price was around $1700, the implications are that the pennant broke higher – so the measured move implies a target of $2300-$2500 for Tesla share price. Any move below $1400 invalidates the bullish technical picture for the Tesla share price.