Whack-A-Mole
You all remember the carnival game. Plastic mole pops up from several different holes at varying speeds. Some highly engaged youngster holding a padded mallet knocks the mole back down. At the end of the game, if the youthful contestant did well enough... the machine will spit out a few tickets that can then be exchanged in mass for some trinket that will delight the player of said game for at least a few minutes.
What if there were to be no tickets awarded once one exhausted both what was left of their time, and their money. With no visible carrot, a donkey will not pull a cart. Unfortunately, we are not discussing carnival games, nor do we refer to carrot and stick techniques of motivation. We discuss the ugliness that is Tesla (TSLA) .
No Spin Zone
Tesla reported on first quarter production and deliveries on Wednesday evening. The numbers are not encouraging. In fact, as I have been known to possibly have a negative bias whereas this stock is concerned (though I have not been short the name in a good while), I actually do make an effort to read into news events concerning this firm, so to be objective. Very difficult, to look at the numbers here, and find something to spin positive on with the possible exception of the reiteration of the firm's stated guidance of 360K to 400K deliveries for the full year 2019. Even that affirmation comes with some hair around it. More on that below.
Basically what investors need to understand is that the firm delivered 63K vehicles. This was a sequential decline of 31%, and roughly 15% below expectations. The mix of these deliveries is also problematic. Of those 63K deliveries, 51K were Model 3's. The firm was only able to move 12K Model S's and Model X's combined. Those vehicles are more expensive and a more desirable sale for the company. Those higher quality sales printed at a 56% decline from the fourth quarter.
The firm claims to have had 10,600 vehicles in transit at quarter's end. Those sales will count toward the current quarter, but be aware that though this is high, there are usually some vehicles in transit... so this is not simply +10,600 for the bulls. Tesla blamed challenges in making deliveries to both China and Europe. Okay. As RBC Capital's Joseph Spak points out in the Wall Street Journal, that excuse "speaks to the lack of planning and foresight that remains at the company."
Where The Wild Things Are
If only this were a children's book written by Maurice Sendak in the early 1960's The book, I thought as a young lad... was enjoyable. This is not. As if producing and delivering were problem enough for Tesla, the bigger issue takes center stage on Thursday afternoon. It is then that CEO Elon Musk's legal team will face off with the Securities and Exchange Commission. Again. Like I told you, we would get back to the reaffirmed 360K to 400K in deliveries for the year.
That is the range the firm officially projected back in January. Since then, Musk has at times indicated that production could be higher, first suggesting that demand to the Model 3 could range somewhere between 350K and 500K for the year in a conference call. Then, the really problematic tweet of February 19th. That day, Musk posted on the Twitter (TWTR) social media site "Tesla made 0 cars in 2011, but will make around 500K in 2019." Why is that a problem? Musk had already agreed with the SEC as part of a prior deal regarding his posting of material information without first getting pre-approval. Musk's defense is that the information was not material. JP Morgan analyst Ryan Brinkman opined on the situation: "The now clear incongruence of CEO outlook statements with official company guidance may hurt the perception of management commentary, eroding investor confidence and potentially placing additional pressure on the shares." Ouch.
Bottom Line
The shares are too volatile to invest in, and the CEO is far too lacking in discipline to be taken seriously by retail investors. That said, go ahead... take a position on either side. Short interest is still significant enough to put a bid under the stock, even down 10%. As an investor, I would not touch this thing. As a trader, I may play with a few shares here and there based on intraday relative strength, but holding an overnight position? No way.
Trade Idea
- Buy NIO (NIO) . I did. Maybe there will be a trade deal. Maybe you still lose. That's the downside. You want to play the electric vehicle game with a firm priced as if they hold a monopoly that they never will hold, or take what is still a gamble on a smaller competitor whose CEO you probably never heard of? Alex, I'll take the devil I don't know for five bucks.
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