(BFM Bourse) – If Tesla manages to generate – against all expectations – a profit in the second quarter of 2020, the electric vehicle manufacturer will become eligible for the S&P 500. In this regard, the reopening with a week in advance of its only factory American, for which the whimsical boss of the group did not hesitate to challenge the local authorities, could be decisive.
Victory for Elon Musk. At the end of a passing of arms which opposed him to the Californian public authorities, the owner of the manufacturer of electric vehicles decided to disobey them and to restart part of the production of his only American factory, in Fremont in California. After Threatening to Move Plant to Texas or Nevada After Pandemic and Complaining Against Alameda County – Finding "No Constitutional Violation" Denied Reopening since.
Elon Musk had reopened the plant on Monday May 11, a week before local authorities agreed. The whimsical CEO had announced it via Twitter and did not hesitate to challenge these same authorities in passing: "Tesla resumes production, against the rules of Alameda county. I will be in the factory with everyone. If someone is arrested, I ask it was me, and me alone (it was not, editor's note), "he wrote on May 11.
The next day, Donald Trump, who is also pawing so that companies can resume their activity and allow a restart of the world's largest economy in this election year, had asked California to "let Elon Musk reopen the factory, NOW" . And finally, county officials (sued by Tesla before the group finally withdrew its complaint) had given Tesla the green light to resume production from May 18, this authorization being subject to the implementation of security measures for staff.
Profit over four quarters
But then, why this eagerness? According to several analysts, this is partly due to the rules for inclusion in the broad S&P 500 index. "I don't think that reopening a week or two later than the three from Detroit (General Motors, Chrysler and Ford) should be very important in the long term, but it will matter for the second quarter results, "said David Whiston, analyst at Morningstar.
To claim to join the S&P 500, a listed group must generate profits (cumulative) over its previous four quarters, and post a profit over its last quarter. However, if Tesla has declared a net profit during its last three quarters, namely $ 143 million in the third quarter of 2019, 105 million in the fourth and 16 million in the first quarter of 2020, these are not enough to compensate for the loss net of 408 million recorded in the second quarter of 2019.
At first glance, generating a profit between April and June seems improbable for the Palo Alto group, knowing that its only American factory remained inactive for about half of the quarter. The consensus of analysts polled by Factset therefore forecast a net loss of $ 387 million, with a 31% drop in deliveries to 67,000 vehicles.
This does not prevent some investors from believing it, like Gary Black, former CEO of Aegon Asset Management, who says at Wall street journal that the reopening of the plant could help Tesla make a profit of $ 2 million in the second quarter. This figure is based on its delivery estimates of 80,000 vehicles, helped by China (where the group established its second factory) and a backlog of stocks that could not be delivered at the end of the first quarter, when the health crisis has started to escalate. He is also convinced that a profit will trigger Tesla's inclusion in the S&P: "I think there is a 75% chance that Tesla will generate a GAAP profit (according to generally accepted accounting principles, Editor's note) minus 1 dollar in the second quarter, and if that happens, there is a 100% chance that the S&P will integrate Tesla, "he believes.
Integration into S&P that could make action leap forward
Membership in the index gives a group the prestige of belonging to the benchmark gauge of American equities and encourages index funds (ETFs) to include its securities in their holdings. According to research firm Ned Davis Reseach, inclusion in the S&P also generally leads to a "rally" for the action of the group in question, even if the gains do not necessarily last long.
Group investor relations manager Martin Viecha agrees with Gary Black and told Deutsche Bank that "Tesla’s record order book should provide a solid pipeline of deliveries under any short term conditions term ", as transcribed by analyst Emmanuel Rosner in a note to investors last week.
Some analysts, on the other hand, doubt Tesla's ability to stay green in the second quarter. This is particularly the case for Brian Johnson of Barclays PLC; who estimates that it will take several weeks for the Fremont plant to run at full speed again and that the additional week gleaned by Elon Musk will be "insufficient to make a profit".
If Brian Johnson is correct, the billionaire of South African origin may not have to wait long to knock on the door of the S&P, analysts expect a sharp and rapid rebound in the third quarter, which could potentially propel the manufacturer electric vehicles towards its cumulative profit target. Over the full year, analysts still expect a profit of about $ 190 million.
Quentin Soubranne – © 2020 BFM Bourse