Damn the profits, Elon, and full speed ahead

This is Fortune digital editor Andrew Nusca, filling in for Adam.

For years onlookers have compared Amazon, the famously profit-averse retailer (until it wasn’t), with Tesla, Elon Musk’s electric automaker.

It’s not difficult to see why. Amazon CEO Jeff Bezos has long maintained that investing in future growth is more important than hitting quarterly earnings targets, much to Wall Street’s chagrin. Amazon’s market value ballooned well before its actual revenues ever held a candle to that of rival Walmart; today, at 26 years old, Amazon has jumped every other company on the Fortune 500—our signature list of U.S. companies ranked by annual revenue—except one: Walmart.

Some could argue that Elon Musk has held similar sway over the Street. This month, Palo Alto-based Tesla became the world’s most valuable automaker (at the moment, worth some $304 billion), overtaking Toyota, even though Tesla controls just a couple of percentage points in market share for global car sales. In 2019, Tesla sold 367,500 vehicles; the same year, Toyota sold almost 2.4 million.

But growth potential is a hell of a drug.

On Wednesday, Tesla is set to release its next quarterly earnings report, and though Wall Street analysts are mixed on the broader narrative, they seem to agree that the company will record expectations-beating deliveries despite the economic effects of the novel coronavirus.

J.P. Morgan, July 5: “We are raising our estimates and price target to account for Tesla’s better than expected 2Q production and deliveries report…We remain Underweight-rated on TSLA shares, on what we see as lofty valuation coupled with high investor expectations and high execution risk.”

Barclays, July 6: “While we still believe TSLA is fundamentally overvalued, we see nothing to prevent the shares moving higher in the coming weeks and urge our bearish friends (perhaps emboldened by a ~$1,400 stock price) to remain in the shelter of their caves.”

Despite a pandemic-stained market that has proven exceedingly difficult for all automakers, some are even calling on 17-year-old Tesla to eke out a fourth straight quarterly profit so it can join the S&P 500, something Amazon took 11 years to accomplish.

Well, I’m here to tell you, Elon: Don’t do it. It’s still too early.

Green shoots aside, Tesla is stuck between a rock and a hard place. Its successful foray into international expansion, courtesy of its two-year-old Shanghai plant, comes at the expense of profit margins, which are thinner outside the U.S. At home, auto industry sales have plummeted as America fails its coronavirus test. Meanwhile, Tesla’s only domestic plant—in Fremont, Calif.—has reopened in defiance of state closures.

It’s likely that Tesla will fail at its stated goal of delivering 500,000 vehicles in 2020, something the company has promised each year since 2018. Given the broader environment, that’s hardly Tesla’s fault. Though the temptation is strong to notch another milestone and join the S&P, it’s clear that 2020 won’t be a banner year for most businesses—nor should it.

So damn the profits, Elon, and full speed ahead.

Andrew Nusca


[email protected]

This edition of Data Sheet was curated by Aaron Pressman.

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