Two things are going on with Tesla Inc. (TSLA) as we reflect on the weekend that just ended. The first is the 15% or so rebound in Tesla's stock that came from CEO Elon Musk's swift settlement of Securities and Exchange Commission fraud charges, a move widely viewed by traders as favorable. The rebound basically sends the stock back up to where it was before the SEC's announcement last Thursday afternoon of its action against Musk.
But there is a second and far more important thing that hasn't yet fully unfolded. That's Tesla quarterly "production and deliveries" report. Tesla has committed to issuing these numbers during the first five days of the quarter, which is one bit of guidance it has managed to meet -- that is, issuing this report on time.
In the middle of the weekend, right after announcing the SEC settlement, Musk sent out an email to his employees hinting that the company might be "very close to achieving profitability..."
Before getting into the substance of the claim, let's first ponder how Musk chose to spread this news. He sent an email to his employees, and of course it then leaked into the world -- the world being defined these days as Twitter -- in about a nanosecond.
Think about that for a moment: Musk is supposedly going to be constrained under his SEC settlement from tweeting without big-league attorney approval. However, he gets around the matter by typing an email that naturally is leaked immediately.
In other words, what's the point on the newfound SEC constraint? Musk might as well have typed the message straight onto Twitter. The SEC has accomplished nothing in its feeble attempt to keep Musk from dropping material information, which may or may not be difficult to interpret or even be true, directly into the investing public's hands.
At a minimum, perhaps the SEC should revisit Musk's intentions and the agreement's effectiveness. At least this part of the agreement seems to have been rendered pointless only hours after it was announced.
As for the substance, "very close" to profitable would clearly mean a miss. The guidance per Tesla's Aug. 1 earnings report had been for profitability.
But let's not get ahead of ourselves here. We need to answer at least two questions:
How would Musk even know whether the company had achieved profitability? If he knew, how about just reporting the whole quarter with all financial statements -- income, cash and balance -- right now?
Profitability according to whose definition? Tesla is notoriously sneaky in defining terms such as margins, profitability and cash flow, for it frequently uses different methods of calculation than most other companies in the market. Unless a full set of numbers is presented, let's not take any of Musk's claims to the bank. You know, like the $420-a-share buyout being secured and all.
Therefore, whatever such claims Tesla does present today or later this week, let's not believe them until we have the opportunity to study the 10-Q we will get in November. Then we can judge the accuracy of any claimed (near) "profitability."
What Tesla will say, and presumably with a high degree of accuracy, this week is how many cars it produced and how many it sold. The consensus appears to be around 80,000 units for each -- produced and sold.
For the Model 3, that might mean just below 55,000 units. Let's say 54,000.Divide by 13 weeks and you get 4,154 vehicles per week. That figure still would be below where the company promised it would be by December 2017 -- 5,000 per week. Remember, 5,000 per week was the figure Moody's had in mind when it downgraded its rating on Tesla on March 27 when it comes to preventing further downgrades.
In the end, though, what matters more than production is sales. And what matters more than sales is profitability. Arguably, what matters even more that is the ability to generate the cash to repay the debts that are coming due.
On those counts, Tesla's challenges remain far from resolved.