Tesla Suppliers in Asia Rally After Company’s Surprise Profit

(Bloomberg) -- Tesla Inc.’s surprise return to profitability is giving its Asian suppliers a boost.

Bizlink Holding Inc., which derives about 5.4% of its revenue from Tesla according to Bloomberg data, gained as much as 5.7%. Fellow Taiwan-listed company Hota Industrial Manufacturing Co. advanced 9.5% while Tianjin Motor Dies Co. jumped the 10% daily limit in Shenzhen. Guangdong Wencan Die Casting Co. climbed 6%, while Ningbo Xusheng Auto Technology Co. rose 4%.

The Palo Alto, California-based electric-car maker jumped 20% post-market in New York after saying third-quarter earnings reached $1.86 per share, above the most optimistic projection. The firm’s announcement that it will start Model 3 production in China before year-end further helped to boost investor sentiment in Asian suppliers.

The progress in Tesla’s China expansion is a positive development to Adam Jonas, an analyst at Morgan Stanley. In a note to clients, Jonas said “the China ramp may extend this year’s momentum deep into 2020.” Jonas is equal-weight on the stock, which including the after-hours gain is 72% above June 3’s closing low.

But Citigroup’s Itay Michaeli is more cautious. While higher-than-expected earnings, the plan to start Model Y production ahead of schedule and more positive free cash flow are clearly positive, he says they’re not enough to be sure the path to consistent profitability is clear.

“A positive initial stock reaction is understandable,” Michaeli wrote in a note, “but our initial impression is that the third quarter won’t necessarily resolve all prevailing bull/bear debates.”

The company’s shares for months have been a battlefield between Tesla cheerleaders and short-sellers. Since May 30, bears have cut the amount of stock borrowed to sell short by 26%, financial analytics firm S3 Partners LLC said in a note earlier this week.

“We continue to believe that investors underestimate Tesla’s ability to consolidate the automotive market,” Alexander Potter, an analyst at Piper Jaffray, said in a note to clients as he reiterated his buy call on the stock. “After posting a surprising profit in Q3, we think it’s getting harder to poke holes in the TSLA thesis.”

--With assistance from Amanda Wang and Cindy Wang.

To contact the reporter on this story: Elena Popina in Hong Kong at epopina@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Richard Frost

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