Tesla Reports its 4th Consecutive Profitable Quarter, Paving the Way to an Elite S&P 500 Listing

author: Eric Walz   

Since becoming a publicly traded company in June 2010, electric automaker Tesla has never reported four consecutive profitable quarters, which is necessary for inclusion in the S&P 500. A listing in the S&P 500 elite status for companies and can open the door to billions in new funding.

On Wednesday Tesla reported profitable second quarter earnings, which is its fourth consecutive profitable quarter for the company and paves the way for the company's inclusion in the coveted S&P 500 index. The S&P 500 is largely considered an essential benchmark index for the U.S. stock market. 

The four consecutive profitable quarters are the first in Tesla's history.

Stocks listed in the S&P 500 are considered to be stable companies with long profitable histories or highly innovative business models, making them popular stocks for inclusion in index funds and corporate managed 401k's that millions of Americans contribute to with each paycheck. By being included in the S&P 500, Tesla can expect more exposure in financial markets resulting in a stable source of new investments.

The S&P 500 is made up of 500 large-cap U.S. companies across a wide variety of industries, and represents the financial might of the American corporate economy. The S&P 500 is limited to just large-cap companies, including Microsoft Corp, Amazon, Apple, Facebook and Alphabet Inc. 

Tesla Q2 profit was aided by new cost cutting measures to help offset the impact of the coronavirus pandemic and stable deliveries, despite the company having to suspend production at its U.S. and China factories during the month of April.

Tesla's shares were up 6% in after-hours trading reaching $1592.33. Tesla's soaring stock price gives its a market cap of $295 billion, making Tesla one of the world's most valuable companies and the most valuable global automaker.

Tesla said it earned non-adjusted net income of $104 million from April to June, or a $0.50 per share profit.

Tesla's shares have gained more than 500% over the past year. Many analysts believe the share rally has been fueled in part by expectations of Tesla's imminent inclusion in the S&P 500 stock index, which would unleash a flood of new demand for Tesla's shares.

Today's earning marks a major accomplishment for Chief Executive Elon Musk since Tesla's early roots in Palo Alto, California in the early 2000's when the company started building its first electric car, the Roadster. 

Tesla's mission to transition the world to sustainable energy with its electric cars was initially scoffed at, especially by U.S. automakers Ford Motor Co and General Motors. Both companies dismissed Tesla's battery-powered cars as a fad that posed little threat to their own sales. Now in 2020 Tesla's is leading the transition to electricifiction in the auto industry around the world.

Tesla is sticking by its goal of delivering a half a million electric cars globally in 2020, despite the interruptions brought on by the coronavirus pandemic.

"While achieving this goal has become more difficult, delivering half a million vehicles in 2020 remains our target," the company said.

Although Tesla reported $5.18 billion in second-quarter automotive revenue, shares of income from regulatory credits, which are payments the company receives from other carmakers to offset emissions, increased by 21%, to $428 million from $354 million in the first quarter. Tesla's revenue from regulatory credits grew by 286% over from the same period last year.

That revenue could dry up as more manufacturers develop and sell electric cars. Right now, many rivals are still focused on vehicles with higher profit margins, including gas-powered full-size trucks and SUVs, including Tesla's U.S. rivals Ford and General Motors.

According to a report from IHS market, GM and Ford "derive a disproportionate share of revenue and profit from a relatively small percentage of total products they offer." Almost all of the profit and most of the automakers' revenue come from trucks, the report said.

"Right now in the EV market, it's Tesla's world and everyone else is paying rent, a dynamic shown front and center this quarter," Dan Ives, a Wedbush analyst, said in a note to Reuters.

Tesla shows no signs of slowing down.The company is looking to expand vehicle production by building a new factory in the U.S. 

Tesla said on Wednesday that a site has been selected in Austin, Texas and initial preparations are already underway. Tesla's second U.S. factory will bring thousands of new jobs to the area and also expand Tesla's annual vehicle output in the U.S. once completed.

Travis County, Texas, where the new factory will be located, has offered $65 million in tax rebates to entice Tesla. The company plans to produce its new Model Y crossover and upcoming Cybertruck at the new plant.

One thing that Chief Executive Musk said is holding Tesla back from producing more electric vehicles is the supply of batteries. Musk said on Wednesday's earnings call that the real limitation to Tesla's growth is battery cell production at an affordable price, and said the company would expand its business with Panasonic Corp and China's Contemporary Amperex Technology (CATL).

Tesla plans to introduce new low-cost, long-life batteries in its Model 3 sedans built in China later this year. The Model 3 has become the best selling electric car in China, which is the world's biggest auto market.

Eric Walz

Originally hailing from New Jersey, Eric is a automotive & technology reporter covering the high-tech industry here in Silicon Valley. He has over 15 years of automotive experience and a bachelors degree in computer science. These skills, combined with technical writing and news reporting, allows him to fully understand and identify new and innovative technologies in the auto industry and beyond. He has worked at Uber on self-driving cars and as a technical writer, helping people to understand and work with technology.