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Tesla Inc 3 Takeaways from 4Q20 Earnings Call

U.S. | TESLA INC | EARNINGS HIGHLIGHTS 3 February 2021

3 Takeaways from 4Q20 Earnings

1. Strong growth in deliveries; momentum to continue. 4Q20 vehicle deliveries grew 61% YoY, Tesla is eyeing 50% growth rates in beating their 44% growth rate in 3Q (Figure 1). This was mainly contributed by rising Model 3 vehicle deliveries and Y deliveries, which accounted for 90% of overall deliveries.

Tesla expects vehicle delivery growth to average 50% for multi-years. It expects to “materially exceed this (growth rate) in 2021”. This flags a strong pick-up in deliveries from FY20’s +35.8%. Netflix, Inc. Technical Buy We think Tesla may be able to attain its target, with its new Model 3 upgrades and rollout of ENTRY PRICE US$458.40 Model Y to overseas markets. STOP LOSS US$390.37 TARGET PRICE US$585.00 While sales in the US seemed to have stagnated in the past three years (Figure 2), recent price CLOSING PRICE US$505.87 cuts for Model Y may have improved Tesla’s competitive positioning vis-à-vis peers in the U.S (Figure 3). Tesla has also started to deliver Model Y in China, its second-largest market. Its COMPANY DATA BLOOMBERG CODE NFLX US pricing is on par with competitors such as Nio ES6 and BMW’s X3. O/S SHARES (MN) : 441 MARKET CAP (USD bn / SGD bn) : 235.79 / 320.68 2. Robust pipeline of products and new factories. Tesla expects its factories, and 52 - WK HI/LO (SGD) : 575.370 / 264.570 More3M Average new Dailyfactories T/O (mn) and : models 7.18 Giga , to start production of Model Y later this year. Volume production should skew towards 2H21. Its Shanghai factory started producing Model Y in late 2020 and is in the process MAJOR SHAREHOLDERS (%) of ramping to full capacity. CAPITAL GROUP COMPANIES INC 14.4% VANGUARD GROUP INC 7.7% BLACKROCK INC 6.6% A battery-cell factory is also being constructed in the Bay Area. This will reinforce its shift to in- house cell production. Tesla reiterated that the idea behind making its own cells is to help it PRICE PERFORMANCE (%) tackle shortfalls in cell output, not disintermediate its cell suppliers such as CATL, Panasonic and 1MTH 3MTH 1YR LG. Instead, it is urging its suppliers to increase production and “we (Tesla) will take as many Netflix Inc (2.0) 2.4 85.4 S&P 500 (1.8) 6.1 16.0 batteries as they can produce”. This points to expectations of strong demand. PRICE VS. S&P 500 Volume production of its Cybertruck is expected to be in 2022. ’s production is

restricted by a short supply of battery cells as resources have been prioritised for cars with 0.70 better margins. This again boils down to its current problem of a shortage of battery cells as global demand continues to outpace production. We believe that once supply improves, Tesla 0.20

will be able to ramp up production to meet growing demand. Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 -0.30 3. Improvements in financials expected. Operating margin was 5.4% in 4Q20, with increased NFLX US EQUITY SPX Index expenses in R&D. Tesla expects margins to expand and remain ‘industry-leading’ in the next few Source: Bloomberg, PSR quarters. In the North America region, operating margins for automobile players averaged to KEY FINANCIALS be around 6% as of 4Q20. Bloomberg consensus for Tesla’s operating margins are 8.5% in 1Q21 Y/E Dec (USD) FY16 FY17 FY18 FY19 and 9.5% in 2Q21 (Figure 4). Revenue /Bn 8.8 11.7 15.8 20.2 EBITDA /Bn 0.4 0.9 1.7 2.9 Net Income (adj.) /Bn0.2 0.6 1.2 1.9 FCF was US$2.06bn. Management will be focusing on debt reduction. In the latest quarter, it EPS (adj.) 0.4 1.3 2.7 4.1 made an early settlement of US$2bn in convertible notes. With that, debt-to-EBIT improved to P/E 287.9 150.2 99.9 78.4 P/BV 19.9 23.2 22.3 18.7 5.9x from 20.5x in 1Q20. DPS (Cents) Source: Bloomberg With improved liquidity, Tesla can turn its attention to expanding production capacity and investing in infrastructure such as a supercharging network to “get ahead of demand”. Yeap Jun Rong (+65 6212 1856) Research Analyst [email protected] Chua Wei Ren (+65 6212 1857) Research Analyst [email protected] Page | 1 | PHILLIP SECURITIES RESEARCH (SINGAPORE MCI (P) 006/10/2019 Ref. No.: US2020_0003

TESLA INC EARNINGS HIGHLIGHT

Round-up We are positive on Tesla. We expect revenue to accelerate in 2021 with its capacity ramp-up and a potential easing of its battery-cell constraints. According to the International Energy Agency, electric cars accounted for only 1% of the global car stock in 2019. Tesla’s share of automobile sales in the US has climbed in recent years, from 0.03% to 2013 to 1.31% in 2019 (Figure 5). We see headroom for further expansion, as the adoption of electric cars is expected to receive a timely boost from the Biden administration’s green drive and policy initiatives from the European Green Deal.

Technical analysis

Tesla Inc (Current Price: US$872.79) - Technical BUY Buy Spot: 872.79 Stop loss: 727.50 Take profit 1: 964.71 Take profit 2: 1050.00

Source: Bloomberg, PSR

Tesla Inc (US: TSLA) had a strong run-up to US$900.40 in January, which broke the top of the CHART LEGENDS pennant resistance (see our report dated 25 January 2021). However, its rally lost steam and its price quickly retreated to the US$780 region before rebounding on 1 February. Technicals indicate Moving averages that Tesla is looking to complete the last leg of the sub-wave v of its extended wave (iii): Red dotted line = 200 Periods MA 1. Tesla’s uptrend is intact despite its recent correction. Tesla has been making a series of higher Blue dotted line = 50 Periods highs and lows, with prices trending above both its 50- and 200-day moving averages. The MA stock’s mean distance is still far from its current price to 50-day MA, which suggests it remains in a strong bullish uptrend. 2. Elliott wave count remains the same as what we observed on 25 January 2021. The only difference is, its sub-corrective wave iv has evolved into an expanded flat from the pennant. 3. Tesla’s bullish candle on Monday opened and closed higher than its bearish candle last Friday, after its bearish candle touched base at the 123.6% extension level of wave (a)(b).

*Timeline of the trade is eight weeks from date issued.

For more technical reports, please visit: https://www.stocksbnb.com/technical-pulse/

Page | 2 | PHILLIP SECURITIES RESEARCH (SINGAPORE)

TESLA INC EARNINGS HIGHLIGHT

Figure 1: Strong growth in vehicle deliveries in 4Q20, aided by rising Model 3 and Y deliveries

Vehicles Sold Worldwide 200

150

Thousands 100

50

0

Q1 2019 Q1 Q2 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2016 Q1 Model 3/Y Model S/X

Source: Bloomberg, Company, PSR

FigureFigure 2: ActiveSales in buyers the US on stagnat Pinduoduoed in isthe on pastpace three to exceed years Alibaba. Tesla mayby 1H2021 have to look to its overseas markets to maintain growth (4Q geographical breakdown not released) Total Revenue by Geography (US$) 16.0

14.0

Billions 12.0 10.0 8.0 6.0 4.0 2.0

0.0 2016 2017 2018 2019 TTM2020

United States Other China Source: Bloomberg, Company, PSR

Figure 3: Recent price cuts of Model Y may have improved Tesla’s competitive positioning in the US

Lucid Air Macan EV Jaguar I-Pace Rivian R1S M-B EQC Audi e-tron

Cadillac Lyriq Polestar 2 Ford Mach-E Nissan Ariya Chevy Bolt EUV Hyundai Kona Fisker Ocean Volkswagen ID.4

$- $50 $100 $150 $200 $250 $300 Low High Source: Bloomberg Intelligence

Page | 3 | PHILLIP SECURITIES RESEARCH (SINGAPORE)

TESLA INC EARNINGS HIGHLIGHT

Figure 4: Tesla expects operating margins to expand and remain ‘industry-leading’. In the North America region, operating margins for automobile players averaged to be around 6% as of 4Q20.

Operating Margin 15.0% 9.5% 10.0% 8.5% 5.4% 5.0%

0.0%

-5.0%

-10.0%

-15.0%

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 2019 2019 2019 2020 2020 2020 2020 2021E 2021E Source: Bloomberg, PSR

Figure 5: Tesla’s share of automobile sales in the US was 1.31% in 2019. We see room for further expansion.

Tesla's share of total automobile sales in U.S 1.40% 1.31%

1.20%

1.00% 0.94%

0.80%

0.60%

0.40% 0.24% 0.27%

0.15% 0.20% 0.08% 0.03% 0.00% 2013 2014 2015 2016 2017 2018 2019 Source: Bloomberg, PSR

Page | 4 | PHILLIP SECURITIES RESEARCH (SINGAPORE)

Research

Benny WANG Dealing Director (852) 2277 6720 [email protected]

ZHANG Jing Kevin CHIU Research Analyst Research Analyst Transportation and Automobiles TMT and Education (86) 21 51699400-103 (852) 2277 6514 [email protected] [email protected]

Parker CHAN Timothy CHONG Research Analyst Research Analyst Communication and Technology Hardware Consumer and Property Management (852) 2277 6527 (852) 22776515 [email protected] [email protected]

Sales

Aric AU Yoshikazu SHIKITA Manager, Corporate & Institutional Sales Manager, International Sales (852) 2277 6783 (852) 2277 6624 [email protected] [email protected]

PHILLIP RESEARCH STOCK SELECTION SYSTEMS

Total Return Recommendation Rating Remarks > +20% Buy 1 >20% upside from the current price +5% to +20% Accumulate 2 +5% to +20% upside from the current price -5% to +5% Neutral 3 Trade within +/- 5% from the current price -5% to -20% Reduce 4 -5% to -20% downside from the current price < -20% Sell 5 -20% downside from the current price

We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock’s risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation

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