Tesla Filing Reveals More About Electric Vehicle Credits

The Tesla 10-Q report—the company’s quarterly Securities and Exchange … Bulls and bears are sharply divided on the stock, and the figures will …

The quarterly sales total was a large number and higher than in the past, which generated some concern among analysts. GLJ Research analyst Gordon Johnson, for instance, believes the company pulled forward credit sales to earn a profit, qualifying the company for inclusion in the S&P 500.

The 10Q doesn’t indicate that Tesla pulled forward sales, but it does show that company did recognize $140 million in deferred sales of regulatory credits during the quarter. The deferred-revenue balance was $140 million as of March 31, but it fell to zero as of the end of June. Tesla has said in recent filings that it expected to recognized the deferred revenue in 2020. It appears to have recognized it during the second quarter.

Sometimes accounting rules require companies to defer sales because, essentially, the transactions aren’t complete, even if cash has come in the door. When revenue is deferred, it doesn’t hit the income statement right away. Sales, of course, generate earnings that increase shareholders’ equity.

Deferred sales become a liability, offsetting cash coming in the door, essentially because a company still has to do something before the money can hit the income statement. Assets always match the sum of liabilities plus shareholders equity.

Less difficult to understand is a comment from CFO Zachary Kirkhorn on the second-quarter conference call. He said regulatory credit sales should double in 2020 from the 2019 level. That implies another $226 million will be recognized in 2020, totaling about $113 million per quarter. The number is lower than in the first and second quarters, but not too different from past levels.


Warranty spending and expenses—figures that indicate how much of sales are going out the door again to service vehicles with problems—are another area where regulatory filings have much better detail than typical quarterly earnings news releases.

Accounting rules require companies to reflect warranty-related expenses in their accounts when they sell a car. The actual spending on repairs happens later, as vehicles age.

In the case of Tesla, warranty spending is trending lower—adjusted for the size of the company. That’s a good thing. Quarterly spending remains below quarterly warranty expenses, adjusted for car sales. That’s to be expected since all warranty expenses don’t show up at once.

The figures need to be adjusted for sales or deliveries because Tesla is growing rapidly.

Bull-Bear Controversy

All large, publicly traded firms make regular SEC filings. They usually come and go without much fanfare. But everything for Tesla is magnified these days because the car company has become such a controversial stock.

A few metrics highlight the divergence in analysts’ views of Tesla. For starters, analysts’ price targets range from roughly $300 to $2,300 a share—a $2,000 spread that is more than 100% of the current stock price. The gap is roughly three times as wide as the average bull-bear spread for stocks in the Dow Jones Industrial Average.

What is more, more analysts rate shares the equivalent of Sell than Buy. That is unusual, given that the average Buy-rating ratio for stocks in the Dow is about 55%. Typically, eight analysts rate an average Dow stock Buy for every one that rates it Sell.

Investors, too, have some beef with Tesla’s valuation. About 9% of shares available for trading have been borrowed and sold by bearish investors betting on share-price declines. That is about four times the average short-interest ratio for stocks in the Dow.

Tesla stock fell 4.1% Tuesday after Bernstein analyst Toni Sacconaghi downgraded the stock to Sell from Hold.

Year to date, Tesla shares are up about 250%, far exceeding the performance of other car companies, the S&P 500, and the Dow.

Write to Al Root at allen.root@dowjones.com

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5 Stock Gainers on Tuesday: Kodak, Aurora Cannabis

The stock market gainers Tuesday with shares rising are Kodak, Match Group, Medpace, Polaris and Aurora Cannabis. Author: Danny Peterson; Publish …

The Dow, the Nasdaq, and the S&P 500 finished down Tuesday as Congress and the Senate work towards another stimulus bill to help Americans get through the financial hardships created by the coronavirus pandemic.

Cramer points to Starbucks shares as a sign that the market was all over the place in trading Tuesday.

For stocks heading in the wrong direction, watch TheStreet go over the five biggest losers in the Dow Tuesday.

Here are five of the biggest stock gainers in the market Tuesday at the close:

1. Eastman Kodak | Percentage Increase Over 200%

Kodak  (KODK) – Get Report received a $765 million government loan to produce generic drugs. Kodak will make ingredients for those generic drugs, including the antimalarial drug hydroxychloroquine that President Trump has been favorable towards in the past.

2. Medpace Holdings | Percentage Increase Over 8%

Medpace Holdings  (MEDP) – Get Report topped analyst estimates when it reported its second-quarter financial results Monday. Medpace does clinical research for medical devices and drug development.

3. Match Group | Percentage Increase Over 7%

Match Group  (MTCH) – Get Report hired a new CEO for Tinder, Jim Lanzone. Lanzone was previously the boss at CBS Interactive and will now be tasked with helping Tinder through the coronavirus pandemic. Last month, Match Group officially spun off from IAC.

4. Polaris | Percentage Increase Over 7%

Polaris  (PII) – Get Report reported its quarterly financials Tuesday and topped earnings and revenue estimates. Polaris is seeing a surge in demand for off-road vehicles helping the company recover from the coronavirus pandemic.

5. Aurora Cannabis | Percentage Increase Over 9%

Aurora Cannabis  (ACB) – Get Report announced layoffs and facility closures in June. Last week, Aurora announced it will be closing some of its European offices. Aurora is down almost 90% since its March 2019 highs.

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Cryptocurrency funds rally as bitcoin hits a 2-month high

Crypto funds surged Monday as bitcoin BTCUSD, +5.31% broke out from a recent trading range and rose to its highest in two months. There is no …

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U.S. stock futures rise ahead of big earnings week

U.S. stock index futures rose late Sunday, ahead of a busy earnings week. As of midnight Eastern, Dow Jones Industrial Average futures were up about 130 points, or 0.5%, as were S&P 500 futures and Nasdaq-100 futures , with all three recovering from early-session lows. Stocks sank Friday, and for the week the Dow ended 0.8% lower, the S&P 500 declined 0.3%, and the Nasdaq lost 1.3%. About 180 of the S&P 500’s companies will report quarterly earnings this week, including Alphabet , Amazon , Apple and Facebook . On Thursday, the U.S. Commerce Department will release second-quarter GDP data, with economists expecting an unprecedented 33% contraction due to the coronavirus pandemic.

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If the Big Five Falter, the Rest of the Stock Market Could Be Deep-Sixed

The latest application appears to be the apparently irresistible outperformance of giant technology stocks that have not only led other equities higher, …

The good news is that the strength of the five biggest stocks— Facebook (ticker: FB), Amazon.com (AMZN), Apple (AAPL), Microsoft (MSFT), and Alphabet (GOOGL)—has lifted the S&P 500 to within 5% of its record set last February. The bad news is that this concentration recalls past peaks when the behemoths’ outperformance couldn’t go on forever.

The FAAMG stocks, as Goldman Sachs’ strategy team, led by David Kostin, dubbed the big five in a research note published this past week, have added more than one-third to their market values in 2020, during the sharpest recession on record and a pandemic. Their performance had allowed the S&P to be up 2% for the year when the report went to press, while the other 495 companies in the index were down 5%, on a cap-weighted basis.

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That’s resulted in the highest concentration among the top five stocks in the market in decades, the Goldman strategists continue.

These five names—FAAMG is a variant of FAANG, without Netflix (NFLX)—now account for 22% of the S&P 500, up from 16% a year ago and 18% at the peak of the dot-com bubble. It’s interesting to note how the names have changed since then. Only Microsoft is a returning chart topper from two decades ago, while the glory days of Cisco Systems (CSCO), General Electric (GE), ExxonMobil (XOM), and Intel (INTC) are long gone.

Simple arithmetic limits the continued outperformance of the biggest names, the Goldman team observes, because many portfolio managers have 5% limits on holdings of any given stock. The strategists’ analysis shows that the average large-cap mutual fund already has a 5% position in Microsoft and about 4% positions in the other big four names.

The strength of the FAAMG stocks is that they’ve been supported by fundamentals and a macro environment that has rewarded their financial and operational advantages in a slow-growth world. An improvement in the economic outlook, however, would likely lead to a rotation from growth to cyclical value stocks. Antitrust threats also pose risks for these market leaders.

Given the big five’s outsize influence, they could weigh on the averages on the downside, as well. “For example, if the FAAMG stocks declined by 10%, in order keep the trading flat, the bottom 100 S&P 500 stocks would have to rise by a collective 90%. This dynamic explains why narrow market breadth has often preceded large drawdowns in the past,” the Goldman note says, using one of the Street’s favorite euphemisms for the word “losses.”

The market got an inkling of this effect Thursday when sharp drops in the big tech names sent the SPDR S&P 500 exchange-traded fund (SPY) down 1.19%, while the Invesco S&P 500 Equal Weight ETF (RSP) was off just 0.16%.

To be sure, the big names aren’t the only ones that have run into some resistance.

Biotechnology stocks had joined in the rally, boosted by hopes for a coronavirus vaccine or treatment. But the iShares Nasdaq biotechnology ETF (IBB) slumped 5.2% on the week, after hitting a 52-week high Monday.

The rationale for the heady equity valuations remains the historically low level of interest rates, which makes a stock’s stream of future earnings more valuable. The benchmark 10-year Treasury note ended the week just above its March 9 closing low yield of 0.569% while the yields on three-, five- and seven-year T-notes slid to new record lows. Perhaps more importantly, real yields—that is, after deducting inflation—hit their most negative levels since 2012.

Negative real yields boost the value of all manner of assets, notably gold, which traded at a record level above $1,900 an ounce this past week. Conversely, the greenback slumped, with the widely followed U.S. Dollar Index ending near a two-year low.

None of that will change when the Federal Open Market Committee meets this week. The central bank is certain to continue the policies that have put yields at these historic lows, including pegging the overnight federal-funds target near zero and maintaining its securities purchases. More important is what might be said, including forward guidance about keeping rates pinned to the floor until inflation lifts or unemployment subsides.

The bigger question will be what to do as another fiscal cliff looms, with unemployment support payments in the Cares Act due to run out July 31 while the Trump administration and Congress wrangle over a phase four stimulus package. The stimulus negotiations will take place against the backdrop of rising coronavirus cases and the release of a second-quarter gross domestic product report that probably will show a record-shattering decline at an annual rate of 30% or more.

That’s ancient history. Real-time data, such as that on the population’s mobility—are people going out or traveling?—TSA checkpoint numbers, and OpenTable restaurant reservations, show “the spike in virus cases is indeed sucking the oxygen out of the robust economic recovery of the past two-and-a-half months,” writes Scott Anderson, the chief economist of Bank of the West.

While Washington might continue to ignore those signs, Stein’s Law suggests the dithering won’t go on forever. A drop in the stock market has shown that it has the ability to concentrate politicians’ minds, if only to cover their rear ends.

Write to Randall W. Forsyth at randall.forsyth@barrons.com

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US Indexes Close Mostly Higher Tuesday

NVIDIA (NVDA) -1.54%. Small-Cap Stocks. In small-caps, the Russell 2000 closed at 1,483.02 for a gain of 15.06 points or 1.03% …

The Dow Jones Industrial Average closed at 26,840.40 on Tuesday with a gain of 159.53 points or 0.60%. The S&P 500 closed at 3,257.30 for a gain of 5.46 points or 0.17%. The Nasdaq Composite closed at 10,680.36 for a loss of 86.73 points or -0.81%. The VIX Volatility Index was higher at 24.91 for a gain of 0.45 points or 1.84%.

Tuesday’s Market Movers

U.S. indexes closed mostly higher Tuesday, though the Nasdaq gave back some of its record gains.

In Europe, the European Union reported an agreement on a substantial Covid-19 rescue fund. The news came just a day after Oxford University and AstraZeneca (LSE:AZN) announced more positive vaccine testing results.

On the earnings calendar, Coca-Cola (KO) reported results. Revenue of $7.2 billion decreased -28.0% year over year and missed estimates by $60 million. Q2 GAAP EPS of $0.41 was in-line with estimates and non-GAAP EPS of $0.42 beat estimates by $0.01. The company also reported an uptrend in sales for July.

The S&P 500 energy sector led gains for the day, up 5.73% after oil prices gained and Chevron announced its acquisition of Noble Energy.

On Capital Hill, investors were watching discussions on another Covid-19 stimulus bill, but lawmakers are suggesting little action until August.

On the economic calendar:

  • The Chicago Fed National Activity Index improved to 4.11 in June from 3.50.
  • The Treasury held auctions for 119-day bills at a rate of 0.120%, 42-day bills at a rate of 0.100% and 273-day bills at a rate of 0.140%.

In the S&P 100, the following stocks led gains and losses:

  • Occidental Petroleum (NYSE:OXY) 11.03%
  • Halliburton (NYSE:HAL) 6.82%
  • Chevron (NYSE:CVX) 6.6%
  • Wells Fargo (NYSE:WFC) 6.08%
  • Exxon (NYSE:XOM) 4.92%
  • Philip Morris (NYSE:PM) 4.2%
  • Bank of America (NYSE:BAC) 3.53%
  • Citigroup (NYSE:C) 3.04%
  • AbbVie (NYSE:ABBV) -2.21%
  • Netflix (NASDAQ:NFLX) -2.18%
  • PayPal (NASDAQ:PYPL) -1.82%
  • Facebook (NASDAQ:FB) -1.71%
  • Gilead Sciences (GILD) -1.67%
  • Amazon (AMZN) -1.65%
  • NVIDIA (NVDA) -1.54%

Small-Cap Stocks

In small-caps, the Russell 2000 closed at 1,483.02 for a gain of 15.06 points or 1.03%. The S&P 600 closed at 859.38 for a gain of 17.51 points or 2.08%. The Dow Jones U.S. Small-Cap Growth Index closed at 10,390.34 for a gain of 46.22 points or 0.45%. The Dow Jones U.S. Small-Cap Value Index closed at 7,031.14 for a gain of 217.33 points or 3.19%.

Other Notable Indexes

Other notable index closes included the S&P 400 Mid-Cap Index at 1,848.35 for a gain of 22.68 points or 1.24%; the S&P 100 at 1,502.97 for a loss of 1.14 points or -0.076%; the Nasdaq 100 at 10,833.07 for a loss of 119.00 points or -1.09%; the Russell 3000 at 1,902.50 for a gain of 3.47 points or 0.18%; the Russell 1000 at 1,808.03 for a gain of 2.07 points or 0.11%; the Wilshire 5000 at 33,231.21 for a gain of 58.55 points or 0.18%; and the Dow Jones U.S. Select Dividend Index at 595.89 for a gain of 11.51 points or 1.97%.

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This article first appeared on GuruFocus.

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