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Cleared Hurdle Still Leaves Tesla Stock in Ludicrous Mode

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Tesla says it delivered just shy of 500,000 vehicles in 2020, in line with its most recent guidance.

Tesla says it delivered just shy of 500,000 vehicles in 2020, in line with its most recent guidance.

Photo: David Zalubowski/Associated Press

A record quarter for
Tesla
isn’t as speedy as it seems.

Tesla announced on Saturday morning that it delivered 180,570 cars world-wide in the fourth quarter, setting a new company record. That brings the 2020 total just shy of 500,000, in line with the company’s most recent guidance. The company also said it would soon begin to deliver its China-produced Model Y crossover vehicle to customers.

While hitting guidance is certainly good news, it hardly represents a towering operational feat that should dazzle Wall Street. For starters, meeting operational forecasts is a routine event for most members of the S&P 500, to which Tesla was added last month.

And investors shouldn’t forget that Chief Executive
Elon Musk

once claimed in 2016 that Tesla would sell a million cars by 2020. Since he made that claim, Tesla stock has rallied nearly fifteen-fold. Last year also came and went without Mr. Musk’s promise of one million fully autonomous “robotaxis” on the roads by the end of 2020 coming to fruition.

Turning back to the present, the company said it produced nearly as many cars as it delivered to customers in the fourth quarter. But back in October, Tesla said it had installed enough production capacity to make 210,000 in the quarter, suggesting the capacity utilization rate in the quarter was in fact a fairly pedestrian 86%.

As a result of last year’s torrid rally, Tesla’s market value sits at nearly $670 billion. That amounts to $1.3 million per car sold last year, and is about seven times the combined market values of
Ford
and
General Motors.
Yet Tesla has a minuscule share of the global auto market, and electric car competition is starting to heat up. To justify the price tag on the stock, Tesla should be blowing past its own forecasts, not just meeting them.

What’s more, what little profit Tesla makes is heavily flattered by sales of regulatory credits to help rivals meet emissions mandates. While the fourth-quarter tally won’t be revealed until Tesla announces full financial results, Tesla has booked $1.3 billion in such sales over the four quarters before that, which carry a 100% profit margin. That profit source may wither as more electric competition from legacy auto makers comes online, which could mean fewer buyers for the credits.

These concerns don’t trouble shareholders who are sitting on huge gains. But recent history does offer a warning: Tesla’s market value has been cut in half twice, in two episodes since 2018. If that were to happen, shares would still be valued at about 700 times trailing earnings. Auto industry leaders have historically been lucky to eke out a valuation of 10 times earnings.

Mr. Musk wisely decided to sell $10 billion in stock last year amid the furious rally. For average investors, it is likely a good idea to follow his lead.

Write to Charley Grant at charles.grant@wsj.com