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Tesla Inc (NASDAQ:TSLA): Musk Feeds Crow to the Shorts

Tesla Inc (NASDAQ:TSLA) has been under fire in recent months, in part because of the antics of the company’s leader, Elon Musk, and in part because of some very vocal and outspoken critics and shorts actively betting against the company – including Jim Chanos and David Einhorn, among others, and Citron’s Andrew Left, until a couple days ago, when he changed sides.

The shorts have been saying this: There’s no way the costs of production can be chopped down enough for the company to use volume to become profitable – the price point they would have to hit to get the market into gear is too low for how expensive Tesla’s are to make.

Tesla Inc (NASDAQ:TSLA) just announced its Q3 earnings this afternoon. And the company absolutely blew the cover the off the ball. The stock is up 12% in extended trade.

Pretty much everyone thought Musk was out of his gourd when he put out guidance that hinged on the company’s first serious profitable quarter. But, it turns out he was very much in his gourd. The company reported Q3 GAAP net income of $312 million, well above estimates for a ($169) million net loss and guidance for profitability. Free cash flow was $881M supported by operating cash flow of $1.4B.

The Model 3 was the best-selling car in the US in terms of revenue and the 5th best-selling car in terms of volume. Go figure. Volume, FCF, net income on a GAAP basis.

This round goes to Mr. Musk.

If you want to get to the real heart of the matter, the Model 3 gross margin came in over 20%. The market was expecting 15%. That’s a massive divergence that basically defines the bottom line for this company right now. And it still is a pretty easy company to analyze. If they get Model 3 margins right, they get everything right.

That’s why this is such a big report, and why Mr. Einhorn and Mr. Chanos likely have some thinking to do.

In addition, the company reaffirmed expectations for a profitable Q4 with positive FCF. Total cash increased by $731 million to $3.0 billion. Model 3 is attracting customers of both premium and non-premium brands, making it a truly mainstream product. Of the 455,000 net reservations the company reported in August 2017, less than 20% have canceled.


Bird’s Eye View

Tesla Inc (NASDAQ:TSLA) frames itself as a company that designs, develops, manufactures, and sells electric vehicles, and energy generation and storage systems in the United States, China, Norway, and internationally.

The company operates in two segments, Automotive, and Energy Generation and Storage. The Automotive segment offers sedans and sport utility vehicles.

It also provides electric vehicle powertrain components and systems to other manufacturers; and services for electric vehicles through its company-owned service centers, Service Plus locations, and Tesla mobile technicians. This segment sells its products through a network of company-owned stores and galleries.

The Energy Generation and Storage segment offers energy storage products, such as rechargeable lithium-ion battery systems for use in homes, commercial facilities, and utility grids; designs, manufactures, installs, maintains, leases, and sells solar energy systems to residential and commercial customers; and sell renewable energy to residential and commercial customers.

The company was formerly known as Tesla Motors, Inc. and changed its name to Tesla, Inc. in February 2017. Tesla, Inc. was founded in 2003 and is headquartered in Palo Alto, California.

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