I use the clown-face emoji so often in my stock chats that my fingers hurt from pushing that part of my screen. That we live in a "Netflix BUY!" world where tweets are substituted for actual equity analysis is just glaringly obvious to me. The reaction to Tesla's (TSLA) latest earnings release is yet another example of this myopia.
If you sourced your investing news only from FinTV (God forbid) you might think that Tesla missed earnings because Elon Musk decided to spark a "price war" to "eliminate competition" in the "burgeoning market for electric vehicles." Or something like that.
Let me hip you to a fundamental truth that three-plus decades following auto stocks has taught me. I will say this once. OK, twice because I already said it on a WhatSApp chat group this morning, without, for a change, using clown-face emojis.
The market sets the price for consumer goods.
Yep. It's not Elon sitting in some Star Chamber that decides the ultimate level of pricing for Tesla vehicles, it is you, the consumer. How is it possible not to know that? But it is not just the blowhards on FinTV with their "Elon Musk is unassailable" rhetoric. This is an actual quote I pulled from an investing.com article on TSLA's earnings, with "analysis" provided by the always-unreliable folks at Goldman Sachs (GS) .
"We expect the focus for investors in the near term to be on the demand response to Tesla's recent pricing actions. To the extent this leads to improved demand, then we believe the stock will recover from what we think will be near-term pressure," the analysts wrote in a note.
No, no, no... a thousand times no! Again, the consumer sets the price. Tesla is cutting prices on their vehicles because:
-- The global economy is not healthy.
-- Tesla's products are old, with the Model 3 approaching its 6th birthday in June, and the Model Y having recently "celebrated" its third birthday in March.
-- Tesla has massively increased production capacity, with new facilities coming onstream in Austin, Texas and Brandenburg, Germany in the past two years. More supply plus waning demand equals lower prices.
-- US consumers just aren't that into EVs, as shown by this Gallup poll which indicated only 16% of the respondents either own (4%) or are "seriously considering" (12%) purchase of an EV.
-- Tesla has consistently performed near industry-bottom in respected initial quality surveys, In addition, Tesla recently had to initiate a total recall of its Full Self-Driving Beta ADAS system. Tesla is no closer to full autonomy than it was six years ago when Musk promised a self-driving Tesla could autonomously transit the US, a feat which has still not happened. In my experience, Tesla's Autopliot ADAS suite is reasonably helpful at best (lane detection, emergency braking, exit ramp negotiation, etc.) and actually dangerous at worst. In my experience in Teslas with the feature activated, Autosteer on City Streets is buggy as hell.
That is a fearsome foursome of reasons not to own TSLA stock, or to short it into earnings, as I did last week with call options on (TSLQ) , AXS Investments' inverse TSLA ETF. Feels good to have a winning options trade, but again, I reserve the clown-face emoji for poor analysis, not winning or losing trades. God knows, I have had more than my share of both outcomes.
I have never met Elon Musk and wouldn't purport to judge his personal bandwidth, but he does have quite a few irons in the fire with SpaceX explosions and Twitter implosions drawing headlines on a regular basis. Whatever the chain of command, senior management at Tesla let their model line get old. That is a cardinal sin in automotive and should never have been allowed to happen. Where in hell is the Cybertruck, anyway?
Consumers are a fickle group, and when interest in a consumer product wanes, lower pricing - and, by association, lower gross margins - will follow. Happens every time.
But why didn't analysts see that coming? The market, as always, is efficient. Tesla is a couple ticks away from trading exactly 50% below where it closed on this date last year. That is Mr. Market telling you that TSLA's earnings were going to decline (the degradation was 24% at the net profit line and 977 basis points in gross margin for 1Q23 vs. 1Q22 for TSLA.) Mr. Market is good. Always has been.
But the disconnect between Mr. Market and the clowns who purport to be experts on the workings of that market, has, in my experience, never been greater. It keeps me busy, and I am happy for that, but just be very, very careful where you source your investing advice. Not seeing the forest for the trees is both clownish and expensive.
