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Tesla Soars After Reporting 4th Consecutive GAAP Profit, Making It Eligible For S&P500 Index Inclusion

Tesla Soars After Reporting 4th Consecutive GAAP Profit, Making It Eligible For S&P500 Index Inclusion



Tesla Soars After Reporting 4th Consecutive GAAP Profit, Making It Eligible For S&P500 Index Inclusion Tyler Durden Wed, 07/22/2020 - 16:28

Among the companies reporting Q2 earnings, few will be watched as closely as Tesla whose stock has quadrupled since hitting a March low, rising to a mind-boggling market value of $290 billion, surpassing the market cap of every other automaker in the world, and making it the 15th largest company in the S&P500 index, if it was in the index that is.

According to the LA Times, that surge makes Tesla the world’s highest valued car company — if far from the largest. Of the 90 million cars sold around the world in 2019 Tesla sold 367,000. Take the two top-selling carmakers in the world, Toyota and Volkswagen, toss in Ford; the stock market still values Tesla higher than all three combined.

In recent weeks, Tesla has also become a retail daytrading favorite with the number of Robinhood accounts holding Tesla shares rising to an all-time high of 496,890, making Tesla the second-most popular stock on the platform over the last 24 hours, and the 19th-most popular stock over the last 7 days. This flood of new retail money has certainly helped send the stock surging, although many have speculated that gamma manipulation in TSLA options has been critical to facilitate the recent surge.

To be sure, Tesla's crazy stock moves continued this week: on Monday, Tesla stock climbed nearly 10%, adding $26.5 billion to its market value in a single day. It pulled back 4.5% on Tuesday, to $1,568.36 a share. Even Jim Cramer who has hyped Tesla stock plenty in the past, is astounded. Asked about Tesla stock on Twitter on Monday, he wrote: “I don’t even know if it is a stock. it is something else entirely, like a new species discovered in the wild.”

Commenting on the move, Russ Mitchell wrote that "Tesla’s bewildering ascent makes more sense when you think of it as a hyper-exaggerated product of — and maybe metaphor for — a stock market that itself has stopped making sense, at least by conventional measures."

Still, Q2 earnings will matter if only to determine if Tesla will be allowed to join the S&P500: should Tesla report a Q2 profit it would be the fourth consecutive quarter of reported profitability on a GAAP basis would make Elon Musk’s electric car company eligible to join the S&P 500 index which could mean a sudden jump in demand from passive funds that track the benchmark.

Still, as CNBC noted earlier this week, index inclusion is not a done deal, and even if the company does report a fourth consecutive quarter of GAAP profits, there’s no guarantee that it will be added to the S&P 500, as inclusion in the index is based on quantitative as well as qualitative factors.

Even if a company meets these criteria as well as the other stipulations, however, it still does not guarantee inclusion in the index, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

“The purpose of the index is to emulate the U.S. domestic common market,” he said. “When you go to put a company in — to actually select it — it’s got to fit into the algorithm in that it represents the market, it has liquidity, it has size,” he added.

The committee meets on a quarterly basis to rebalance the index, and the next meeting is scheduled for the third Friday in September. But Silverblatt said companies can be added or removed from the S&P at any time.

On the other hand, in a note published this morning, Morgan Stanley analyst Adam Jonas wrote that "in the event Tesla posts a loss and has to wait for S&P500 index inclusion... while this would be a short-term disappointment, we doubt the market would see this as narrative changing at all" (Jonas is Underweight the stock and has a $740 price target)

Besides GAAP earnings, Jones said that other things to look for in Q2 earnings include update to guidance, timelines of new production facilties (Texas, Berlin), Cybertruck order book and launch timline, gross margins and FCF and software business model updates.

To hit its earnings bogey, a revenue source Tesla can tap into that’s difficult for analysts to model for are the regulatory credits the company sells to other automakers that need them to comply with emissions standards. Tesla generated $354 million in revenue from these credits in the first quarter. Analysts expect this business to grow, as Europe and China are making their car-pollution rules stricter.

Meanwhile, as Bloomberg adds, another key question will be how many cars it will deliver: in January, the company said full year vehicle deliveries "should comfortably exceed 500,000 units." In April, Tesla said it had "capacity installed to exceed 500,000 vehicle deliveries this year" despite factory shutdowns because of the coronavirus. So far, Tesla has delivered about 179,050 vehicles through the first half of the year. If the company reaffirms its guidance for more than 500,000, analysts will be keen to hear more color including a regional breakdown.

* * *

So with all that in mind, here is what Tesla just reported for the second quarter:

  • Q2 GAAP EPS of $0.50, up sharply from a GAAP loss of $2.310 a year ago, and beating expectations of an 11 cent loss
  • Q2 Revenue of$6.04BN, down 4.9% Y/Y, but above the $5.4BN estimate.
  • Q2 Adjusted Net Income $451MM, vs exp loss of $74MM. However, Tesla sold $428MM in regulatory credit this quarter, a new record ; of not Q2 Net income was just $104MM.
  • Q2 Free Cash of $418MM, vs Exp. cash burn of $617.9MM.

Full breakdown of Q2 results:

Some more details from the second quarter earnings report:

  • Delivering Half Million Vehicles in 2020 Remains Target
  • Capacity Installed to Exceed 500k Deliveries This Year
  • Shanghai Factory First Deliveries Expected in 2021
  • Capacity Installed for Over 500,000 Deliveries This Yr
  • Says Semi Deliveries to Begin in 2021
  • Shanghai Factory Is Progressing as Planned

So how did Tesla report positive GAAP EPS?

It generated a record $428MM from sale of regulatory credits. This means that without a record $421MM in regulatory credit sales it would have negative GAAP earnings. There was more: As Tesla revealed, its operating profit improved "due to a temporary reduction in employee compensation expense, a sequential increase in regulatory credit revenue" and most notably a deferred revenue recognition of $48M related to a Full Self Driving (FSD) feature release.

Since this will be closely scrutinized, courtesy of Bloomberg here’s a look at how Tesla’s revenue from the sale of regulatory credits have trended over the last few years. One wonders

No matter the details, however, Tesla now officially has 4 consecutive quarters of positive GAAP earnings, which explains why the stock is up as much as 5% after hours.

Putting the company's Q2  revenues in context:

  • Q2 2020:   $6.0 billion
  • Q2 2019:   $6.3 billion
  • Q2 2018:   $4.0 billion
  • Q2 2017:   $2.8 billion
  • Q2 2016:   $1.3 billion
  • Q2 2015: $955 million
  • Q2 2014: $769 million
  • Q2 2013: $405 million
  • Q2 2012:    $27 million

Tesla reported a total of 90,891 Deliveries in the quarter, and total production of 82,272 vehicles.

And here is a snapshot of Tesla's total production and deliveries:

The Model S/X are pretty much dead:

And the only thing keeping Tesla alive is the Model 3:

One big surprise in the report was Tesla's free cash flow, which soared from a cash burn of $895MM in Q1 to a positive number of $418MM in Q2, surprising Wall Street which expected a burn of $74MM.

Commenting on the number, Tesla said that free cash flow was "negatively impacted by a higher percentage of deliveries  occurring towards the end of the quarter compared to prior quarters, as well as an increase in government rebates and  regulatory credit receivables, which are paid in accordance with their payment terms. Since vehicle production resumed in Fremont and Nevada in early May, our days payable outstanding was not impacted as much as initially anticipated."

Thanks to the positive cash flow, Tesla's cash and cash equivalents increased by $535M in Q2 to a record $8.6 Billion.

What about future output and production capacity? This is what Tesla said about its Fremont, Shanghai and Berlin factories, which will need billions in future capex investments to meet the company's lofty production goals:


Although the Model Y production line was operating for about four months in the first half of 2020 due to shutdowns, we exited Q2 with Model Y production running at installed capacity. This ramp was significantly faster than our initial Model 3 ramp, which took over nine months to reach the same weekly rate. We are installing additional machinery at the Fremont Factory, which is expected to increase total Model 3 / Model Y capacity from 400,000 to 500,000 units per year.


Model 3 has received a strong reception in China, not only becoming the bestselling EV, but also competing with mid-sized premium sedans, such as BMW 3-series and Mercedes C- (even before subsidies and vehicle tax), reduced operating costs and industry leading standard equipment. Construction for Model Y lines in the Shanghai factory is progressing as planned, with first deliveries expected in 2021.


In Germany, one of our biggest European markets, Gigafactory Berlin construction continues to progress. As we build new factories, we continue to iterate on the factory and product design to improve efficiency, cost and technology. We are implementing further structural improvements based on our learnings from prior factories

Elsewhere, Tesla also had its worst quarter yet... for traditional solar-panel deployments. According to Bloomberg, Tesla deployed just 27 megawatts in 2Q, just below its previous low of 29 megawatts deployed one year earlier. But hey, who cares.

Finally, the outlook.

As a reminder, In Q1 Tesla backed off its pledge of delivering 500,000 units in the first quarter; fast forward to Q2 when the company reported that while it has the "capacity the capacity installed to exceed 500,000 vehicle deliveries this year, despite recent production interruptions," the world is still too uncertain.

Although we have successfully ramped vehicle production back to prior levels, it remains difficult to predict whether there will be further operational interruptions or how global consumer sentiment will evolve in the second half of 2020. We will continue to update our outlook as necessary.

In terms of cash flow, Tesla said that it "should have sufficient liquidity to fund our product roadmap, long-term capacity expansion plans and other expenses."

Here we need to note that once again Tesla Accounts Receivable gimmick continues, and as Tesla Charts pointed out, AR grew again even as total revenue shrank by 4.9% which is bizarre for a company that "demands payment before delivery."

* * *

So what was the market's verdict?

Commenting to Bloomberg, Gene Munster said that "Tesla was gunning for S&P induction, and they hit their target,” he told me. “But they didn’t have to pull too many rabbits out of the hat to get there. They did it for reasons that are sustainable."

Largely due to the positive GAAP EPS number and maintaining the guidance of 500,000 car sales for 2020, Tesla stock is exploding, and is now above $1,700 in after hours trading, meaning its market cap is a record $317BN as of this moment.

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Eli Lilly reveals two-year data for experimental eczema treatment after FDA roadblock

Eli Lilly is bolstering the case for its experimental eczema treatment lebrikizumab with a first look at how patients fared after two years of maintenance…



Eli Lilly is bolstering the case for its experimental eczema treatment lebrikizumab with a first look at how patients fared after two years of maintenance treatment.

Almost 80% of moderate-to-severe atopic dermatitis patients on once-monthly lebrikizumab maintained clear or almost clear skin at two years, Lilly announced on Friday. The safety profile was also “consistent with previous lebrikizumab studies in patients with moderate-to-severe atopic dermatitis” with no new signals seen, the company said.

The news comes less than a month after Lilly conceded a loss for lebrikizumab in atopic dermatitis over issues at an unnamed third-party manufacturer. The FDA’s complete response letter cited concerns relating to the monoclonal antibody drug substance, though regulators did not state any issues with the drug’s clinical data, safety or labeling, according to Lilly.

Patrik Jonsson

“We are working very closely with the FDA and also with the third party manufacturer to resolve those issues as soon as possible,” Patrik Jonsson, executive vice president, president of Lilly Immunology and Lilly USA, and chief customer officer, told Endpoints News on Friday, though he declined to provide a timeline for resubmission.

“I think the totality of the data just puts us in a very good position,” he added. “We believe we’re well-positioned to become a first-line biologic.”

Lotus Mallbris

Lotus Mallbris, senior VP of global immunology development and medical affairs, said in a news release Friday that the long-term results “reinforce the strong efficacy and safety profile” of lebrikizumab. Lilly execs have previously touted the IL-13 inhibitor as a potential option with less frequent dosing than Sanofi and Regeneron’s rival Dupixent, which is dosed every other week for adults.

Of the patients who joined Lilly’s long-term extension study from the Phase III ADvocate 1 and 2 studies and received monthly doses of lebrikizumab, 76% achieved clear or almost clear skin at two years, the company said. Of those who joined from the combination study with topical corticosteroids (ADhere) and received monthly doses, 79% achieved clear or almost clear skin.

Lilly snagged lebrikizumab in its $1.1 billion acquisition of Dermira, which originally bought the drug from Roche. While Lilly holds the rights for development and commercialization in the US and most other countries, its partner Almirall holds the rights for dermatology indications (including eczema) in Europe. The EMA’s Committee for Medicinal Products for Human Use gave a positive recommendation for the drug in adults and young adolescents 12 years and older with moderate-to-severe atopic dermatitis in September.

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Contaminants in cannabis and hemp flowers create potential for health risks

Cannabis use, even for medical purposes, could make some people sick due to harmful fungi that contaminate the plants. Credit: Photo from Frontiers in…



Cannabis use, even for medical purposes, could make some people sick due to harmful fungi that contaminate the plants.

Credit: Photo from Frontiers in Microbiology, courtesy of Z. Punja

Cannabis use, even for medical purposes, could make some people sick due to harmful fungi that contaminate the plants.

That is the finding of a recently published peer-reviewed journal article, whose authors recommend further study and consideration of changes to regulations to protect consumers, especially those who are immunocompromised. They examined data, previous studies, and U.S. and international regulations related to the cannabis and hemp industry.

The article was published in Frontiers in Microbiology. It was researched and written by Kimberly Gwinn, professor of entomology and plant pathology at the University of Tennessee Institute of Agriculture: Maxwell Leung, assistant professor, and Ariell Stephens, graduate student, both from the School of Mathematical and Natural Sciences at Arizona State University; and Zamir Punja, professor of plant pathology/biotechnology at Simon Fraser University, Burnaby, British Columbia, Canada.

“Hemp and cannabis are new crops, and we are in the early stages of understanding relationships with their pathogens. Several pathogens produce mycotoxins, compounds that negatively impact human health and are regulated in other crops. In this review, we summarize the current literature on mycotoxins in hemp and cannabis products, identify research gaps in potential mycotoxin contamination in hemp and cannabis, and identify potential developments based on research in other crop systems,” Gwinn said.

Cannabis research has mostly focused on the substance and medical uses of the plant, but with the increased legalization of cannabis for various uses, this article addresses the need for more study of potential health risks.

“Although fungi and mycotoxins are common and well-studied contaminants in many agricultural crop species, they have been generally under-studied in cannabis and hemp. This is partly because human health risk assessment methodologies used to regulate food and pharmaceuticals have yet to become standard for the emerging cannabis and hemp industries. Additionally, the wide range of consumer uses of cannabis and hemp flowers, including for medical use by patients with susceptible conditions, makes it uniquely challenging to assess and manage human health risk of these contaminants,” according to the article.

The authors discuss Aspergillus, Penicillium, Fusarium, Mucor, and other fungi that can infect the plants and can produce mycotoxins; review the regulations and assessment methods of the contaminants; and offer recommendations to produce safer products for all consumers. Environmental factors such as where the plants are grown, whether indoors or outdoors, and in soil or soilless media, may impact the kinds of contaminants and ensuing health risks.

Studies reviewed by the authors show some fungi may cause infection on lung and skin tissues, and these infections were most common when smoked and less common in edibles. They also found cancer patients using cannabis to help with nausea and appetite as well as transplant patients and consumers with HIV and type 1 diabetes may be particularly susceptible to infection. Studies also show workers harvesting cannabis could also be at risk. The authors encouraged consumers who are immunocompromised to use products that have been sterilized until better data are obtained.

The authors studied international and U.S. standards for these contaminants, but there is a lack of data on the prevalence of the contaminants and their health impacts. Another issue for consumers is the varying levels of legalization of cannabis products from state to state, which has resulted in each state creating its own regulations. Fusarium mycotoxins, a prevalent class of fungal contaminants in agricultural commodities that can result in vomiting, are not currently regulated.

Assessing and testing for pathogens can be problematic, as the authors found when they studied various methods including culture-based assays, immuno-based technologies, and emerging technologies. The article also examines management of the possible toxins before harvest and after harvest. “A major hurdle faced by cannabis and hemp industries is addressing the disconnect between production-related issues and human safety issues,” the article states. Recreational use of hemp and cannabis is common in many areas and all case studies linking cannabis use and fungal infections, except one, involved patients who were immunocompromised. The authors suggest a potential solution is “to reduce potential harm to medical users of cannabis from toxigenic fungi is to develop a two-tier system that distinguishes products intended for medical and recreational use.”

“We wrote this article to bring these issues to the attention of the scientific, medical, and regulatory communities. We hope to encourage further research in this area, particularly in the areas of mycotoxins in product. Better data and public access to data will allow us to fully evaluate these risks and subsequently ensure safe products for consumers,” Gwinn said.

The University of Tennessee Institute of Agriculture is composed of UT AgResearch, UT College of Veterinary Medicine, UT Extension, and the Herbert College of Agriculture. Through its land-grant mission of research, teaching and extension, the Institute touches lives and provides Real. Life. Solutions.

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Israel Moves To Shut Down Al Jazeera Over Gaza Coverage

Israel Moves To Shut Down Al Jazeera Over Gaza Coverage

The major Qatari-based news channel Al Jazeera is about to be shut down in Israel,…



Israel Moves To Shut Down Al Jazeera Over Gaza Coverage

The major Qatari-based news channel Al Jazeera is about to be shut down in Israel, Gaza and the West Bank by Israeli authorities. It has been accused of "helping Hamas" and encouraging violence against Israel. The ban is likely to include a raid on its offices in Israel.

The Israeli government on Friday approved "emergency regulations" giving it the power to shut down foreign news agencies which are deemed to be acting against the "security of the state"

AP file image

The first target for shutdown is believed to be Al Jazeera, given its staunchly pro-Palestinian news coverage, which has also rejected Israel's denial of the Al Ahli Arab Hospital bombing and mass casualties. Media outlets ranging from i24 News to Times of Israel are reporting that Al Jazeera is the prime target.

The channel is the largest Arabic language news outlet in the world, and also is a prime global source for English-language updates from within Gaza. 

Israeli Communications Minister Shlomo Karhi has emphasized that Israel was at war on "land, in the air, at sea, and on the public diplomacy front".

According to The Times of Israel, "The regulations are retroactive, meaning broadcasts by the Qatari network since the war started can now be used as the basis for a decision to shut down the staunchly pro-Palestinian news outlet’s local branch."

Karhi called out the major Middle East news outlet by name in his fresh comments. "We will not allow in any way broadcasts that harm the security of the state… The broadcasts and reports of Al Jazeera constitute incitement against Israel, help Hamas-ISIS and the terror organizations with their propaganda, and encourage violence against Israel."

Israel's communications and defense ministers have reportedly agreed to the following sweeping emergency powers:

  • Israel will be able to order TV providers to stop broadcasting the news outlet in question;
  • close its offices in Israel, seize its equipment, and
  • shut down its website or restrict access to its website, depending on the location of its server.

Al Jazeera has frequently alleged that Israel's military targets its correspondents in the field, as was the case with slain Al Jazeera journalist Shireen Abu Akleh, who had been shot in the head by Israeli forces while covering a raid on Jenin in the West Bank in May 2022.

Some online commentators have noticed the parallels with the Zelensky government in Ukraine, who early in the war with Russia moved strongly against media outlets deemed as 'opposition' or 'pro-Russian'. This included a crackdown on Russian-speaking media in general, despite a huge portion of Ukrainian citizens speaking Russian as either a first or second language.

Al Jazeera's live, English-language broadcasts can be accessed via the web

Tyler Durden Fri, 10/20/2023 - 14:05

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