Tesla Inc (NASDAQ:TSLA) stock is the widowmaker of short selling. According to a CNBC report, the pop in TSLA stock on Thursday following yesterday’s second-quarter report has cost hedge funds more than a half a billion dollars today alone on bearish bets. Those losses have hit a staggering $3.64 billion since 2016.
Tesla’s earnings report has launched shares by more than 6% in Thursday’s trade, giving the company a $57 billion market capitalization that exceeds the valuations of operators like Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM).
Yet again, Tesla CEO Elon Musk has proven that he knows not only how to build world-changing tech companies, but also how to effectively manage Wall Street — even if he doesn’t put it into practice all the time. Funnily, Musk has shared mixed views on TSLA stock in the past, including a recent Twitter post in which he noted the price was “higher than we have any right to deserve.”
He then followed up by saying, “I should clarify: Tesla stock is obviously high based on past & present, but low if you believe in Tesla’s future. Place bets accordingly.”
Well, at least there’s no arguing with Wednesday evening’s result.
Today, let’s take a deeper look into Tesla’s Q2 earnings report and dig into three of the most important things investors should take away from it:
#1: Tesla Is Running on All Cylinders
One fear expressed by TSLA stock holders is that the preparation for and launch of the Model 3 would weigh on sales of older models (the Model S and Model X). Those fears appear to be overblown.
From Musk, in his shareholder letter:
“Orders for Model S and Model X have also been increasing, both leading up to and following the Model 3 handover event. In July, our weekly net order rate for these vehicles was about 15% higher than our Q2 average weekly order rate. In addition, although too early to draw strong conclusions, we are seeing an even further increase in net Model S orders since the July 28th event. This growing demand gives us even more reason to expect increased deliveries of Model S and Model X in the second half of this year.”
The core business looked unrestrained as a result. In Q2, revenues spiked by 120% to $2.79 billion, which included a 93% year-over-year in automotive sales. Meanwhile, while the company lost $1.33 per share, that figure was better than the Street consensus of $1.57.
#2: Tesla’s Cash Situation: Not Great, But Not Awful
Operating a next-generation car company is not cheap, but Musk is doing a decent job of keeping the costs reasonable.
For the quarter, cash burn came to about $1.2 billion, leaving about $3 billion in the bank. However, Tesla expects spending to ramp up in the second half of 2017 to support mass production of the Model 3, which means the company likely will have to tap the capital markets early next year.
For shareholders worried about additional dilution in TSLA stock, now’s not the time to panic. Musk believes he can finance the company’s needs via a debt raise.
#3: Model 3 Is Everything
Going forward, TSLA stock is tethered to the Model 3. This car is a test of whether Tesla can truly go mainstream, and if it passes, the revenue potential is outstanding. Many other upstart auto companies have failed because they couldn’t pull off the transition from niche player to major automaker.
While Tesla has suffered some cancellations of Model 3 pre-orders, there still appears to be enough demand to meet production goals. Some cancellations likely are the result of just how long it will take for deliveries to reach customers, though this is an important number to watch as Tesla comes closer to running out of eligibility for consumer tax credits on its vehicles.
Another concern is whether Tesla can churn out the cars at a low cost while still maintaining high quality standards.
Various analysts are not so convinced, including Goldman Sachs, JPMorgan Chase and UBS, which all have price targets at a steep discount to the current value of TSLA stock.
And Musk himself has noted that the next six months will be “manufacturing hell,” perhaps strategically buying himself more time. So if there are any mishaps — which given Tesla’s history seems inevitable — TSLA shares might not experience as much of a shock.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.