Tesla needs a perfect year. That won't be easy
By Julia Horowitz, CNN Business
Updated 1215 GMT (2015 HKT) April 27,
2021
A version of this story first appeared
in CNN Business' Before the Bell newsletter. Not a subscriber? You can sign up right here.
London (CNN Business)Tesla (TSLA) just posted
record quarterly profits,
with one measure of earnings passing the $1 billion mark for the first time.
But in order to justify its sky-high
stock price, the automaker will need to overcome a growing list of challenges.
What's happening: A global chip shortage
is snarling production, while the business environment in China, a crucial
market, remains fraught. Competitors are gaining ground and Tesla faces a
safety investigation tied to a fatal
crash in Texas.
Shares
are down 2% in premarket trading.
Tesla shares have jumped in
April
The
carmaker's stock is up almost 11% this month after pulling back in February and
March.
Some Wall Street analysts still see a solid case for
Tesla's stock, which is trading at more than 1,100 times its earnings,
according to data from Refinitiv.
"While the company is still far from the sort of
scale to justify its stock price ... production has exploded, and the company
expects further expansion with the 2021 completion of its Berlin and Texas
factories," Bespoke Investment Group told clients.
But
a closer look at the company's financial results show that a big reason the
company had a strong start to the year is because of its sale of regulatory
credits, which brought in $518 million in revenue, and bitcoin holdings.
Tesla
invested $1.5 billion in bitcoin last quarter while the cryptocurrency was
soaring. Zachary Kirkhorn, the automaker's "master of coin" (okay, chief financial officer), said the company later
sold 10% of its position, resulting in a $101 million profit. That's nearly a
quarter of the $438 million Tesla earned when results are adjusted for stricter
accounting standards.
And
while there's no denying that the company's car sales could continue to boom
this year, there are, as ever, a long list of risks.
CEO
Elon Musk, whose official title is now "Technoking," told investors Monday that the chip shortage was "a
huge problem" for Tesla, and that it was battling "some of the most
difficult supply chain challenges that we've ever experienced."
Musk
said the company should be able to stick to its target for better than 50%
growth in sales this year, which would take sales over the 750,000 mark.
To
reach that target, the company needs to continue to see strong demand in China,
the world's biggest market. But it faces potential issues there from both
consumers and Beijing.
Last
week, Tesla's booth at the Shanghai Auto Show was briefly besieged by
protesters complaining about problems with its cars. The episode comes after
Tesla was summoned by regulators in February to discuss the quality of its
Shanghai-made vehicles. The following month, reports surfaced that the
country's military had banned its vehicles from entering its complexes over
concerns that cameras onboard could be used for spying.
Chinese
authorities aren't the only ones putting Tesla under the microscope. The
company is also working with US safety investigators after two passengers were
killed in a crash of a Tesla Model S outside Houston.
These
challenges come as Tesla faces increasingly fierce competition from upstart
rivals like Rivian, as well as traditional automakers like Volkswagen and
General Motors that are ramping up their electric vehicle offerings.
Tesla
could still rise above the fray — and Bespoke Investment Group notes that the
company's stock is often divorced from its financial performance anyways. But
the path ahead for Tesla and its Technoking looks tricky.
Wall Street's Archegos
losses just topped $10 billion
Losses
caused by the collapse of US hedge fund Archegos are piling up,
my CNN Business colleague Charles Riley reports.
The
latest: Swiss bank UBS (UBS) revealed on Tuesday that it lost $774 million from last
month's implosion of Archegos Capital Management, a bigger hit than many
analysts expected. The announcement came as Japan's Nomura (NMR) said it would book losses of $2.9 billion from Archegos,
a sharp increase from its initial estimate of $2 billion.
Global
banks have now disclosed losses of at least $10.4 billion from the failure of
Archegos, a New York-based family office that managed the fortune of investor
Bill Hwang. Some smaller banks may also have been hit, and the fallout has
taken the shine off an otherwise strong earnings season for global banks.
Credit Suisse (CS) has been rocked hardest. The Swiss bank said last week that the collapse will cost it a
total of $5.5 billion, and it has announced the departure of its top investment
banker and chief risk officer. Other members of the executive board will not
receive bonuses for 2020.
Morgan
Stanley (MS) suffered a $911 million loss, and Japanese lender
Mitsubishi UFJ Securities is expecting to lose roughly $300 million.
Remember:
Archegos used borrowed money to build massive positions in stocks including
media companies ViacomCBS (VIACA) and Discovery, and was unable to pay back its lenders
when share prices dropped. The resulting damage to banks has raised concerns
about the dangers of leverage and led to calls for tighter regulation.
Is the $2 trillion company club about to expand?
Apple (AAPL) is the only American firm to
reach a $2 trillion market value. But it could
soon have a lot more company in that elite club, my CNN Business colleague Paul R. La
Monica reports.
Microsoft is worth just under $2
trillion. Amazon has a market capitalization of
$1.7 trillion, and Google owner Alphabet is worth about $1.5 trillion.
Tech
stocks have come roaring back in recent weeks, helping to push these Nasdaq
stalwarts near record highs.
In
fact, tech's Magnificent Seven — Facebook, Amazon, Apple, Netflix, Alphabet,
Microsoft and Tesla— are now collectively worth about $9.3 trillion. That's a
quarter of the S&P 500's total market value of $37.5 trillion.
"The
earnings expectations for the S&P 500 are through the roof for this year as
investors expect this great recovery, and tech is a big part of that,"
said Daniel Morgan, senior portfolio manager with Synovus Trust Company. "These companies are just
so dominant."
Morgan
noted that while some of the tech leaders of the 1990s, such as IBM, Oracle and
Cisco, eventually began to post slower earnings and sales growth, that doesn't
appear to be happening with the current industry leaders.
"They
are high-growth companies but also defensive because they could still do well
if the reopening of the economy doesn't go smoothly after Covid," said
Chris Gaffney, president of world markets at TIAA Bank. "Some consumer
behavior changes during the pandemic may be permanent."
Source: https://edition.cnn.com/2021/04/27/investing/premarket-stocks-trading/index.html
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