I don't see enough in Tesla Inc.'s (TSLA) fourth quarter results. Ironically, it probably won't matter in terms of the stock. Investors seem intent on paying exponential multiples for this stock. Regardless of what it does they justify the share price in any way. Nevertheless, I will waiver from the fundamentals. Tesla's earnings do not validate its market value -- $0.78 a share in diluted earnings does not justify the current stock price. The company lost $5.72 a share for the full year ended 2018. I get it. This stock is all about the future. But the future involves competing against many rivals. These rivals have manufacturing resources and learned processes that Tesla is still striving to match. Past that, the company's success is predicated on the idea that the mass population will sacrifice the convenience of a standard car in exchange for an expensive EV that will only drive around 300 miles before you have to plug it in.
I commend the company on its vast improvement in gross profits of $1.44 billion vs $438 million. However, it's my opinion that Elon Musk and his cohort made every effort to ensure they could show profits in order to please shareholders. Outside of the statement that profitability makes, the numbers do not add up to this stock.
Revenues increased a strong 152% year over year to $6.07 billion. That's obviously a great sales growth story. Gross profits increased 228% to $1.44 billion. Thanks to the strength of these numbers, net income went from losses to gains year over year. Net income was $139.48 million vs. ($675.35 million) a year ago. These are by all accounts good percentage gains. Compare them to the actual share price performance, and it isn't that impressive. Tesla's earnings break down to $0.78 per diluted share. For the full year, Tesla's diluted earnings were ($5.72) per share. That in no way justifies the $300-ish share price. Of course we already know this. At this point, I've given up on the notion that investors will ever look at Tesla's stock from a viewpoint of financial logic. They are invested in the sales pitch of a very clever salesman. Even when their fearless leader had a run-in with the SEC, Tesla shareholders didn't exactly flee from the stock. It's difficult to say what will actually wake people up to the financial realism of Tesla. Perhaps the $920 million debt payment due in March will wake them up a bit, but I doubt it.
From my perspective, I simply cannot get behind the idea that a car company trades at this sort of multiple. No major automaker, profitable company mind you, trades at more than maybe a P/E ratio of 15. That's a very liberal number by the way. So why does Tesla merit this kind of valuation? Their ability to sell on a mass scale is not proven. Their ability to derive long-term financial value is not proven. Their rivals are creating more and more comparable vehicles while still retaining the ability to sell conventional cars. Tesla doesn't have the infrastructure of these rivals. If you have the choice of purchasing a Volkswagen or a Chevrolet that you can have serviced at your local dealership, or a Tesla that doesn't really have the dealership layout in place, what are you going to buy? It all doesn't make sense.
For Tesla's stock price to become valid, the company has to crush these competitors. With the loss of what had been some very nice tax credits, I don't think they can compete. The truth is demonstrated in the company's lowering of prices on models. Ford (F) is making EV's, GM (GM) is making EV's, Jaguar is making EV's, Daimler (DDAIF) is making EV's that aim to rivals Tesla's expensive models. The company has taken too long to drive its agenda. The big boys are coming for Tesla. Outside of competition in terms of EV manufacturing, the cars themselves are not practical to the common consumer. You can't commute or travel long distances with one of these. People want more than 300 miles in "fuel" range.
If someone is in love with the idea of Tesla saving the planet, that's one thing. Buy one of their cars. But to say that the company is a solid holding for the portfolio is something else entirely. Smart people should base their investments on having tangible performance. Tesla does not have the performance to justify paying these kinds of prices. You need to be able to trust management, and base your investments on what the company can do. I don't think much needs to be said about the company's management. The past few months speak for themselves. In terms of earnings, the math doesn't add up.