TSLA: The Good, Bad and UGLY

Tesla (NASDAQ: TSLA) released Q2 earnings yesterday in the middle of a week loaded with tech, airline and industrial reports. This provided a brief respite from the market’s intense focus on the FED’s rate decision and Mueller’s testimony before Congress. TSLA’s numbers were unimpressive, and Wall Street ruthlessly punished the stock, sending it down more than 14% upon Thursday’s open. The report included the good, bad and the ugly:

The Good: Tesla’s revenue growth continued in 2Q19. The company delivered a record 95,000+ vehicles and their hockey stick growth in this regard is reason to be optimistic amid a rather unexciting period elsewhere in the auto industry. After Thursday’s beat down, the company is valued at just ~2X revenue, a low metric considering Tesla trades like a tech stock. For those desperate for profitability, TSLA revised CapEx guidance down to $1.5B from $2B. For more on the company’s (self-selected positive) report, see their Q2 update.

The Bad: The company posted EPS of ($1.12) versus analyst expectations of $0.40, the primary sledgehammer in today’s trading rout. For the same quarter last year, the company produced EPS of ($3.06); while earnings are trending in the right direction, investors looked for a positive bottom line and they didn’t get it this quarter. Tesla noted it would prioritize production capacity above achieving positive net income throughout 2019. Investor patience is running out in this regard.

Tesla reported a balance of ~$5B in cash & cash equivalents, the highest sum in company history. Great news, right? Dive deeper and you find that its fresh treasure-chest of cash is a result of bond and equity offerings; adding to already significant debt worries that have soured investors for years.

The Ugly: The story of a mass exodus at TSLA’s management level is nothing new, although yesterday’s announcement was more significant. Tesla’s CTO and co-founder, JB Straubel (above center), announced his resignation at a particularly untimely moment for the company as its struggle to ramp production continues with the new roadster and Model Y yet to come to market. Straubel led the design and implementation of the Nevada Gigafactory and sat alongside Elon Musk as they announced the revolutionary plans to the world in July 2016. On Wednesday evening’s investor call, Straubel’s replacement acknowledged he has “big, big shoes to fill.” Straubel dismissed concerns of his departure and assured those listening in that he would maintain a presence at the company, but his efforts to assuage investors were largely inadequate.

Those critical of changes in management were mostly worried that TSLA had an unstable, perhaps hostile corporate environment, but weren’t concerned about the underlying innovation the company is renown for. The latest news poses a repeated threat to the former and a new question mark to the later.

 

Image credit to Business Insider

PLEASE NOTE: EDWARD C. MCCANN DOES NOT BEAR ANY RESPONSIBILITY OR LIABILITY WITH RESPECT TO RESEARCH MADE AVAILABLE. INVESTORS SHOULD UNDERSTAND THAT THEY ASSUME FULL RESPONSIBILITY FOR ANY TRADING DECISIONS THEY MAKE BASED UPON THIRD-PARTY RATINGS OR REPORTS.
THE INVESTMENTS DISCUSSED HAVE VARYING DEGREES OF RISK, AND THERE IS ALWAYS THE POTENTIAL OF LOSING MONEY WHEN YOU INVEST IN SECURITIES. SOME OF THE RISKS INVOLVED WITH EQUITIES INCLUDE THE POSSIBILITY THAT THE VALUE OF THE STOCKS MAY FLUCTUATE IN RESPONSE TO EVENTS SPECIFIC TO THE COMPANIES OR MARKETS, AS WELL AS ECONOMIC, POLITICAL OR SOCIAL EVENTS IN THE U.S. OR ABROAD. INVESTMENTS FOCUSED IN A CERTAIN INDUSTRY MAY POSE ADDITIONAL RISK DUE TO LACK OF DIVERSIFICATION, INDUSTRY VOLATILITY, ECONOMIC TURMOIL, SUSCEPTIBILITY TO ECONOMIC, POLITICAL OR REGULATORY RISKS AND OTHER SECTOR CONCENTRATION RISKS.

 

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