Tesla (TSLA) Q2 2020 earnings results and conference call transcript

Published , by Asif Khan

Tesla posted a profit in Q2 of 2020, and shares are moving afterhours on the news. This is the first time in the company's history that they achieved positive GAAP net income in four straight quarters. The company is now eligible for inclusion in the S&P 500 index. 

Tesla's Q2 2020 Earnings Release 

Highlights

Cash 

Profitability

Operations

Summary

Our business has shown strong resilience during these unprecedented times. Despite the closure of our main factory in Fremont for nearly half the quarter, we posted our fourth sequential GAAP profit in Q2 2020, while generating positive free cash flow of $418M.

Our profit improved sequentially due to fundamental operational improvements. Additionally, we experienced costs associated with factory shutdowns, which were offset by actions taken during the quarter to reduce expenses. For the trailing 12 months, our GAAP operating margin reached nearly 5%. We expect our operating margin will continue to grow over time, ultimately reaching industry-leading levels.

We believe the progress we made in the first half of this year has positioned us for a successful second half of 2020. Production output of our existing facilities continues to improve to meet demand, and we are adding more capacity. Later this year, we will be building three factories on three continents simultaneously.

While we invest in our product roadmap, improve technology and localize production, we continue to drive cost efficiencies across the business and closely manage working capital. It is important to manage our cash diligently in order to ensure we are ready for any scenario.

Revenue

In Q2, total revenues remained relatively flat QoQ. The positive impact of higher vehicle deliveries, higher regulatory credit revenue and higher energy generation and storage revenue was somewhat offset by lower vehicle average selling price (ASP) and lower services and other revenue.

Profitability

Our operating profit improved in Q2 despite challenging circumstances. Positive impacts included lower operating costs due to a temporary reduction in employee compensation expense, a sequential increase in regulatory credit revenue and deferred revenue recognition of $48M related to a Full Self Driving (FSD) feature release. These positive contributions were offset by significant costs related to factory shutdowns, as well as a sequential increase in non-cash SBC expense primarily attributable to $101M related to 2018 CEO award milestones.

While ASPs declined sequentially, improvements in product and manufacturing costs, driven by Model Y and China-made Model 3, and improved aftermarket software and connectivity revenue made a positive impact on our profitability

Cash

Quarter-end cash and cash equivalents increased by $535M QoQ to $8.6B, driven mainly by free cash flow of $418M. Free cash flow was negatively impacted by a higher percentage of deliveries occurring towards the end of the quarter compared to prior quarters, as well as an increase in government rebates and regulatory credit receivables, which are paid in accordance with their payment terms. Since vehicle production resumed in Fremont and Nevada in early May, our days payable outstanding was not impacted as much as initially anticipated.

Check out the full press release on the official Tesla Investor Relations website.

Check back for some highlights from the Tesla Q2 2020 earnings results conference call, which starts at 5:30 PM ET:

Full Disclosure:

At the time of this article, Asif A. Khan, his family members, or his company Virtue LLC had the following positions: Long Tesla via TSLA shares and options