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Why This Impressive Tesla Stock Rally May Mislead You

On the heels of the Q3 earnings report, today turned out to be the best day for Tesla stock in over six years.  Even so, some analysts and shareholders continue to be cautious and at times a little ridiculous in regards to their responses, at least according to E For Electric’s own Alex Guberman.  So what exactly does he have to say on the matter? 

The Q3 2019 Report

When it comes to the report itself, Guberman feels that prudence is the best lens through which to view it.  While the reported net income of $143 million is certainly great to look at, it is not a huge deal for a multi-million dollar company. 

Then there are deliveries– Tesla CEO Elon Musk reported that 97,000 deliveries were made during Q3 of 2019.  Again, that is a lot of cars, but the number is not that different than in Q2 of this year when Tesla delivered about 95,200 vehicles.  In Q2, Tesla reported losses of $408 million.  Guberman believes that looking at deliveries as a sign of profitability is not necessarily the best practice.

Tesla reported record cash on hand in Q3, a whopping $5.3 billion.  The thing is, nearly half of that was just raised back in May of this year when Tesla was forced to raise capital in order to make up for losses in Q1 and Q2.  The sales of convertible notes and new equity pumped fresh cash into the automaker’s coffers, sure, but that cash did not flow there as a result of profit. 

Then there is the fact that Tesla failed to build as many superchargers, service centers, and shops as they had originally promised.  That allowed Tesla to keep that money in their pockets, says Guberman, and perhaps look a bit better than they should have financially. 

Tesla Stock vs Naysayers

Guberman’s biggest beef with analysts regarding the Q3 2019 report seems to be with their opinions on the company’s growth.  A general consensus among those critics is that Tesla “failed to show growth” since Tesla only reported revenue of $6.3 billion in Q3 2019, while they reported revenue of $6.8 billion in Q3 2018. 

It is important to remember that maximum growth and maximum profit cannot exist at the same time.  This past quarter was focused primarily on growth, and while profit may have slowed a little, the growth that Tesla experienced during that same time was fantastic:

  • The Gigafactory 3 is almost ready to start production and is ahead of schedule.  Not only that, Tesla managed to build it for about 65 percent less capital expenditure per unit of manufacturing capacity than its Model 3-producing counterparts in the U.S. 
  • Preparations for the start of Model Y production are also moving faster than originally planned, and Tesla has even moved up the production timetable from the fall of 2020 to the summer.
  • The Fremont factory has built an extra assembly line to allow for the production of the Model Y. 
  • The Tesla Semi is slated to begin production soon.
  • The official announcement of the location of the European Gigafactory should occur by the end of the year.
  • Tesla’s attempts to revamp Tesla Energy appear to have been successful, as the company deployed 43 MW of solar in Q3, which is 48 percent more than in Q2.

Guberman believes that there is no doubt that all of this growth is going to lead to future profitability.

Tesla vs Short Sellers

People seem to either love or hate short selling– when an investor borrows a stock only to sell it, then buy it back again at a lower price to return to the lender.  Such investors are essentially betting that the stock will drop in price, and they profit while the securities markets fluctuate.  It is a polarizing practice, and one that both Musk and Guberman detest. 

According to financial analysts S3 Partners, Tesla is the top shorted company in the stock market. 

While the fact that such investors are expecting a company’s stock price to drop can be discouraging, Tesla may have gotten the last laugh this time around.  Since Tesla’s stock jumped $45 a share thanks to the Q3 financial report, short sellers ended up losing $1.5 billion on Thursday alone.

Note:  Anything you read here is an opinion and is for information purposes only.  It is not intended to be investment advice.  Seek a properly licensed professional elsewhere for investment advice.

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