Tesla's Growth Will Lose Steam In Q4: Bear Analyst Gordon Johnson

Tesla Inc TSLA reported its fifth straight quarter of profitability Wednesday, sending investors and analysts into a frenzy. 

GLJ Research is an exception: the firm remains bearish on the electric vehicle stock's performance. 

The Tesla Analyst: Gordon Johnson has a Sell rating on Tesla with a $40 price target. 

The Tesla Thesis: Excluding one-time taxpayer funded credit sales, Tesla's GAAP net income was negative for the fourth quarter, Johnson said in a Thursday note.

The analyst questioned how the EV maker's gross margin excluding credit sales expanded from 18.7% in the second quarter to 25% in the third quarter — marking the highest level since the first quarter of 2017.

Despite Fremont production remaining nearly identical since the fourth quarter of 2019, the cost of good sales per unit has dropped $4,600 over that time period, he said.

This would translate to a Chinese factory unit cost of good sales of  $17,000, Johnson said. That's an improbable figure given Tesla's GAAP auto margins and the fixed depreciation per car, the analyst said. 

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The company also changed the language around its production guidance for the year, terming it as "more difficult guidance," he said. 

The muted deliveries outlook comes despite Tesla's stated production capacity of 840,000 cars in the third quarter and 650,000 cars in the second quarter, Johnson said. 

This relays a sizable demand problem, he said.

"TSLA cannot sell out its existing capacity, despite 13 price cuts this year, 7 of which have occured in China." 

Assuming normalized GAAP net income of $109 million, excluding $397 million in regulatory credit sales and assuming $175 million in one-time charges for Elon Musk's stock-based compensation, Tesla's per share normalized GAAP EPS works out to 10 cents per share, or 40 cents per share on a normalized basis, the analyst said.

Tesla's P/E ratio using this normalized GAAP EPS is over 1,000, even as the company is facing headwinds such as falling European sales and flat Chinese sales, Johnson said.

Investors are valuing Tesla at a hyper growth multiple, he said. 

As reality sets in, Tesla's shares will begin to fall, the analyst said. 

"On timing, we think there's elevated risk that 4Q20 results mark the beginning of the end to TSLA's growth narrative." 

TSLA Price Action: At last check, Tesla shares were adding 1.68% to $429.74. 

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Photo courtesy of Tesla.