Tesla Inc (NASDAQ:TSLA) had quite a run heading into the company’s first-quarter earnings report on Wednesday, but there was a lot of arguing along the way. That’s not bound to stop anytime soon, as Tesla’s evening Q1 release was a mixed bag that gave bulls and bears alike plenty of ammunition.
Even after a modest pullback, Tesla stock has risen 49% in 2017 alone. The market capitalization of Tesla stock passed that of both Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM). “Peak auto” concerns surrounding those stocks, nor Tesla’s recall, nor intense competition in autonomous driving from Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL) and many others, could dent the rally.
And yet, TSLA stock remains one of the most-shorted large caps on the market. Roughly 20% of shares are sold short at the moment.
But the question of whether Tesla is on the cusp of a revolution, or a bubble about to pop, wasn’t settled by first-quarter earnings. In fact, the report will only inflame the argument. And the battle over TSLA stock will rage on for at least another quarter.
First, though, a look at Tesla’s first-quarter earnings report.
Why the Bulls Are Right
Tesla bulls no doubt will point to the revenue beat first. Sales were $2.7 billion, against consensus expectations of $2.61 billion.
Model 3 production continues to be targeted for July, good news for a company that has missed deadlines in the past. And that production is guided to 5,000 vehicles per week “at some point” in 2017 — a figure that should double next year. Tesla is building out its Supercharger network, improving repair times, and has set a new range record with the Model S 100D.
Deliveries set a quarterly record, and non-GAAP gross margin increased 560 bps year-over-year, showing the potential benefits of scale for Tesla. In the automotive business, there doesn’t appear to be much, if anything, to change the long-term optimistic growth projections of most TSLA bulls.
In solar, Tesla is being more “selective.” Deployments were down year-over-year, but margins improved. Leasing rates declined from 91% a year ago to 69%, dampening fears that Tesla was essentially buying business through riskier contracts. In-store solar sales are working, roof tile pilot manufacturing is starting, and storage installations continue, including a major project in Hawaii.
All told, any investor who bought TSLA stock for growth heading into the quarter likely will be happy with the quarter.
Why the Bears Are Right
Of course, many of the bearish arguments toward Tesla stock will persist out of Q1 as well.
Tesla remains unprofitable, and sharply so. In fact, a non-GAAP net loss of $1.33 missed badly against consensus of 82 cents. The figure barely improved year-over-year, after a -$1.46 print a year ago.
From an operational standpoint, bears likely will read between the lines of the earnings release as well.
In response to concerns about AutoPilot 2.0, Tesla wrote that “we have been deploying our internally-developed software into the vehicle fleet.” That’s not the same as saying, “we fixed the problem.” Installations of assembly lines are “progressing well” — but not complete. “Equipment installation is also underway” at Gigafactory 1 in Nevada.
For TSLA shorts betting on a near-term disruption to tank Tesla stock, the Q1 report didn’t have any big news. But it didn’t prove them wrong, either.
And the fundamentals don’t look altogether impressive. Solar installations fell. Tesla burned almost half a billion dollars in cash, excluding collateralized lease borrowing changes. Many traders see TSLA stock as either overvalued and/or headed for a fall.
They likely won’t be swayed by the Q1 report any more than their bullish counterparts.
Bottom Line on TSLA Stock
All told, CEO Elon Musk’s groundhog saw his shadow, which means three more months of arguing.
Record deliveries and continued progress toward Model 3 will assuage the bulls. Bears will insist cash burn and a very tight timeline for the Model 3 mean TSLA stock is due for a quick, nasty fall.
Tesla shares are down less than 1% in after-hours trading, and that seems about right. Because it’s hard to see either side changing their mind after this report.
As of this writing, Vince Martin has no positions in any securities mentioned.