TSLA Misses Estimates & Stock Soars

Tesla stock had been cratering in the past few weeks because of fears the firm would need to raise capital, that Elon Musk was an aloof CEO, and that the firm would miss Model 3 production expectations. Tesla’s guidance was for a production run rate of 2,500 per week. The actual result was 2,020 in the last week of March. For most companies this would be a disaster, but Elon Musk likes to make high projections which are unrealistic. It’s like the saying “shoot for the moon. Even if you miss, you’ll land among the stars.” Normally, this isn’t the way firms operate, but Tesla is a special company because of its ability to innovate and ‘coolness.’ Elon Musk is working on autonomous vehicles at Tesla and he’s the CEO of SpaceX which is working on a mission to Mars.

Because most analysts and investors know Tesla’s guidance is overzealous, they have lower estimates. Usually analysts expect results a little better than what companies say because they are conservative. The fact that Tesla always misses its guidance is a short trap. Besides a few short term periods where its stock corrected, being a short has been a bad bet. The sentiment was particularly negative heading into this report. The stock rallied after it because the results beat analysts’ estimates for about 1,200 Model 3 cars per week. Bloomberg’s estimate for this week is for 1,279 cars. The criticism among skeptics is that Tesla halted Model X and Model S production to support Model 3 production. The Model 3 will have lower margins because it is a car aimed at the mass market, but it is important to deliver the cars in a timely manner to keep up the brand image.

No Capital Raise Coming

Perhaps the biggest worry was relieved as Tesla said it wouldn’t need to raise capital this year. This is probably the main reason why the stock was up 5.96% on Tuesday. 2018 is the most important year in the firm’s history as its luxury cars were all created with the goal of eventually selling a mass market electric car to lower carbon dioxide emissions and turn Tesla into a profitable business. The most important aspect I’m focused on is how the new Tesla customers like the car and if there is demand outside of the initial group of pre-orders. The $36,000 base model still isn’t out yet, so the demand question is still unanswered.