The fact is that I see so many of Tesla's ( TSLA) vehicles on the Long Island Expressway that I no longer point them out to my wife. That's good. And bad.
CEO Elon Musk was not wrong about demand for his vehicles. First the wealthy. Then the "green earth" crowd. Now, regular folks who are perhaps not wealthy, but more concerned with getting through the day than embracing a good cause.
As a consumer, I am not there yet, but I have used an electric lawn mower for years, and as an outdoorsy type, recognize the effort to conserve the planet. Evidence supports growth. Pitfall? He just might be in a lousy business. Time will tell.
Tesla went to tape with the firm's second-quarter performance on Wednesday evening. The firm posted a loss per share of $1.12, a severe miss, on revenue of $6.35 billion, also a miss, but still growth of 58.8% year-over-year. The stock is much lower in response.
That said, there is a lot to like in the data. The problem is that this stock had rallied hard through from early June through yesterday, based upon estimates made weeks ago that the firm was producing new vehicles at a record pace. That's why deliveries of 95,356 total vehicles, including 77,634 Model 3s on production of 87,048 vehicles had been priced in.
In turn, this elevated level of both deliveries and production had priced in a higher expectation for both an earnings per share print that might be closer to profitability and higher revenue. In the call, questions were raised regarding the possibility that the Electric Vehicle tax-credit step-down had caused a surge of demand this quarter that may have simply been pulled forward, robbing the future. To no one's surprise, Musk disagrees, though he did concede that the Model 3 may be cannibalizing demand for other more expensive vehicles.
With ramped up production came pressured gross margins for the automotive group, which dropped to 18.9% from 20.1% in the first quarter, and 20.6% a year ago. That might not really be as bad a it looks. When total gross profits that include energy generation and storage are compared through the prism of generally accepted accounting principles, gross margin actually improved to 14.5% sequentially from 12.5%, though there was a decline from last year.
In addition, the firm expects to be cash flow positive at some point during the current quarter. Interestingly, the firm, thanks to that $2.4 billion public offering of both equity and convertible bonds (dilutive), now stands on a mountain of cash: $5 billion. Tesla has never had that much cash on the books.
As for capital expenditure, Musk expects to spend between $1.5 billion and $2 billion for the full year. That's kind of a wide range for my liking, but given the firm's plans for launching Gigafactory Shanghai at some point before year's end, and the Model Y next year, in my opinion ... understandable. Overall weakness across markets for new autos, coupled with high inventories at traditional automakers may further pressure margin in my opinion. This might be Tesla's greatest enemy at this point. Cost control in the manufacturing process is key over the next six months.
As for the departure of the firm's chief technology officer, J.B. Straubel, as with what happened with Apple ( AAPL) losing Jony Ive, I do not see this as tremendously consequential. Ive was significant to Apple's success in the past, but the firm had moved in a new direction. The same is true here. Tesla's future is now in being competitive, and less in fancy design.
I know that most of you think me a Tesla short seller. The fact is that my two most recent positions in this stock have been longs, and they were both profitable. Two successful positions in a row was something that I was never able to accomplish back in the days when I repeatedly looked for opportunity to short this name. The fact is that I bought a small amount of equity this morning on this weakness. Can I make it three in a row? We'll see.
I left my old Pitchfork on this chart just to show how violently the name broke out in early June. The shares then loosely obeyed everyone's favorite 12th century mathematician. Now? You see that thin blue line. That's the 50-day simple moving average. The funds are watching that one, too. The firm is 24% owned by management, and 39% owned by funds. The rest is owned by the cult. Well, management and the cult aren't going anywhere. The funds are watching that thin blue line. That line cracks? Poof. Another round of selling. That line holds? Then we have a ballgame.
Don't get me wrong, my position is small and it is a trade, not an investment. I see anything in the high $230s today, and I'm history. that said, I do believe there is reason for investors to believe.
The company telegraphed a boost to its payout on its latest earnings call.
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