Tesla's surprise quarterly profit is 'highly questionable' and not 'at all sustainable,' one analyst says (TSLA) | Markets Insider

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• Tesla's third-quarter earnings beat drove the company's stock as much as 20% higher Thursday.
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• But its latest report hides a number of troubling figures, according to TLF Capital analyst Ed McCabe, who has been a staunch Tesla bear for some time.
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• The report resembles Tesla's "highly questionable" earnings surge from the year-ago period, McCabe said, calling the newest numbers not "at all sustainable."
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• The analyst also questioned how Tesla's capital expenditures fell 25% year-over-year as it continues to build its Shanghai factory.
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• Thursday's stock jump misses the fact that "the story remains unchanged" and Tesla is "structurally unprofitable," McCabe said.
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• Watch Tesla trade live here.

Tesla's third-quarter earnings landed well above Wall Street's projections. The company even turned in a surprise profit. But one analyst thinks the good news is all too fleeting.

The automaker's year-ago results included a similar jump to profitability, but Tesla's latest metrics raise doubts about whether the growth can continue, Ed McCabe of TLF Capital said in a note to clients.

"The quality of that result was highly questionable. Q319 was extremely reminiscent," McCabe wrote in a Wednesday report. "Like then, I don't think this quarter's numbers are at all sustainable and that those short or inclined to be short should use strength to add or initiate positions."

It's worth noting that McCabe has been a staunch Tesla critic for some time. In the past, he's said the company's stock is worth $0, and has expressed skepticism over vehicle-delivery figures.

McCabe also keyed in on the "lack of detail in the release" around Tesla's sizeable jump in total gross margin. The subsequent analyst call led him to guess the company received an additional discount on batteries from Panasonic.

The relationship between the battery producer and the automaker "has become strained" and could cause a drag on Tesla's earnings down the road should Panasonic look to modify the partnership, he added.

Further, founder and CEO Elon Musk took time in Wednesday's analyst call to praise the speed at which Tesla's new Shanghai factory arrived at the trial production phase. Yet the company's latest capital expenditure figures fell 25% year-over-year, and the plant is still under construction.

"The fact that capex doesn't cover depreciation implies Tesla isn't keeping pace with maintenance, never mind constructing a new plant," McCabe wrote.

The analyst anticipates Tesla's 10-Q filing will answer some of his questions and serve as a negative event for the automaker's stock price. The post-earnings stock surge arrives despite the automaker continuing to post worrying results, McCabe wrote.

"After-hours stock move aside, the story remains unchanged. Tesla is not a growth company and it is valued like one," he said. "Tesla is structurally unprofitable."

In order to drive home the lack of growth seen at the electric automaker, McCabe highlighted the following items, among a handful of others:

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• Automotive revenue down 12%
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• Total revenue down 8%
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• Research and development down 5%
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• Operating income down 37%
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• Free cash flow down 58%
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• Total debt up 12%

McCabe has previously called for Tesla's valuation to fall to $0, and described the automaker's organic demand as " extremely weak" in a September report. The Tesla bear also warned that increased competition from Porsche's electric Taycan sedan will bring new constraints to the company's growth.

Tesla traded at $296.95 per share as of 11:46 a.m. ET Thursday, down roughly 12% year-to-date.

The company has 12 "buy" ratings, 10 "hold" ratings, and 15 "sell" ratings from analysts, with a consensus price target of $267.74, according to Bloomberg data.

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