SpaceX launched one of its Falcon 9 rockets into space on Monday. First, it dropped its spy-satellite payload, and then it pulled off a perfect landing back on earth. That scene immediately made me think about founder Elon Musk’s other big moonshot: the earth-bound Tesla Inc (NASDAQ:TSLA) and TSLA stock.
I’m a fan of Musk — not because he’s a billionaire or that the car brand is hot with the monied crowd, but because he’s always pushing the automotive industry to change for the better. Regardless of whether Tesla ultimately succeeds on a grand scale is almost beside the point.
But you don’t want to hear my speech about how great Tesla is. You want to know if TSLA stock is going higher after it announces first-quarter earnings after the close on May 3.
That’s a good question … but one I can’t possibly answer without flipping a coin.
Seriously, though. You and I should both be much more interested in what’s going to happen at Tesla two or three years from now.
TSLA Stock Is Doing Fine
By the end of the first day of May trading, shares were up almost 3%, hitting an intraday high of $327.25 along the way. Expectations heading into the earnings news are relatively positive given Tesla already told investors in early April that Q1 2017 deliveries were more than 25,000, topping both its own estimate of between 23,000 and 24,500 vehicles, and analyst estimates of 24,200.
On the top and bottom lines, analysts expect $2.6 billion in revenue and a loss of $0.81 per share. Both of these numbers are significantly better than in the same quarter last year. With Tesla’s Model 3 ready to roll out of its factory in July, the car maker has a lot of work ahead of it.
Earnings for me is all about tone. If I’m an investor holding Tesla stock, I want to hear that the plan is ahead of schedule and rolling along nicely. I especially want to hear something — anything — about when it might be cash-flow positive.
When Will Tesla Make Money?
Making money is of particular importance to Tesla now that it’s got Solar City attached at the hip.
Barron’s Avi Salzman didn’t exactly write a flattering piece earlier this week suggesting all the good news from the car business could be for nothing if SolarCity doesn’t get its act together.
“Bloomberg forecasts that solar installations will rise just 3% this year, after jumping 64% in 2015,” wrote Salzman. “In addition, the innovative solar leases that fueled SolarCity’s growth are declining in popularity. The cost of solar panels has plunged in the past year, just as SolarCity has expanded manufacturing.”
The last thing Tesla stock needs is another RJR-Nabisco fiasco where investors aren’t giving the car business its due because of the awful stench coming from its solar subsidiary.
Musk has his reasons for integrating Solar City with Tesla, but he needs to demonstrate progress in stabilizing the solar business so that it can play a meaningful part of the company’s future.
“The overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy, which I believe to be the primary, but not exclusive, sustainable solution,” wrote Musk in his 2006 Master Plan for Tesla.
Elon’s Energy Company
Musk sees the combined businesses as an energy company; electric vehicles are just one of its various products and services offered to consumers as part of its business model.
Tesla doesn’t have to make money in 2017, perhaps not even in 2018 or 2019, given its cult-like support from investors. Eventually, like all businesses, it will run out of cash. That’s what the shorts are betting will happen.
“If you can’t make money selling a $100,000 car to rich people, how are you going to make money selling a $45,000 car to normal people?”, former hedge fund manager David Rocker (he’s personally short Tesla) asked in an interview with the Los Angeles Times recently. “You don’t really have to go any farther than this.”
It’s a great premise for shorting Tesla stock, perhaps even a logical one, but an investment in Tesla is anything but logical. It’s a calling for many, and when you have that kind of commitment, it’s hard to persuade shareholders to give up their stock.
“Tesla’s products have a captivating impact on consumers and shareholders alike; this advantage will be difficult to replicate. In the minds of its customers, employees, and shareholders, Tesla isn’t just another company,” Piper Jaffrey Senior Research Analyst Alex Potter wrote in a recent note to clients. “More so than any stock we’ve covered, Tesla engenders optimism, freedom, defiance, and a host of other emotions that, in our view, other companies cannot replicate.”
Last November, I made TSLA stock my No. 1 pick to go from losing money to making money, and in the process making shareholders some amazing returns. That opinion hasn’t changed, and Alex Potter’s sentiments above are part of the reason.
Elon Musk is brilliant. Possibly Jeff Bezos brilliant. And that deserves a huge premium because not many American CEOs can hold a candle to these two.
Whatever we learn from Tesla’s earnings report, my advice is to stay the course. I rarely get excited about stocks that are losing money. Tesla is one of those exceptions.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
