Tesla (NASDAQ:TSLA) shares fell hard July 25 after it reported a bigger than expected loss. Could this be a buying opportunity for TSLA?
Analysts don’t know what to think about Tesla stock. The ratings are all over the board. Some have it as “sell.” Some have it as “underweight,” “buy,” “overweight,” or “hold.” Astute investors will note that these are all the possible ratings.
It’s those who were expecting bad news who are smiling after earnings. TSLA lost $1.12 per share during the June quarter. A loss of 40 cents per share was expected. Revenue was $6.35 billion against $6.41 billion expected.
Worse, perhaps, the “energy generation and storage” unit, batteries and solar panels, brought in less revenue than a year ago, $368 million.
Why would anyone think of putting new money into Tesla now?
The Bull Case for TSLA
The bull case for Tesla starts here; you’re no longer paying a huge premium over sales. Tesla has now brought in over $10.8 billion in sales for the first half of the year. Keep that up over the second half and you’re at $21.6 billion, against a market cap of $40 billion.
But revenue will likely be higher than that. A second production facility, in Shanghai China, is about ready to go into production. It could make 150,000 vehicles during the year that started in July. These cars will be priced at about $47,000 each, which sounds high but is consistent with what Chinese buyers are paying for mid-sized sedans. A third facility in Europe is on the drawing boards.
Tesla now thinks it can make 500,000 cars in the next year. Those estimates look reasonable with the additional factories.
Can Tesla sell these cars? Its European market share tripled during the quarter, and it became the most-popular electric in the market. Tesla owners remain more satisfied with their cars than any other car buyers.
The battery side of the business is also doing well, with deployments up 81% during the quarter. The problem is the solar panel business. It remains a gigantic fail, deployments declining to just 29 megawatts of power.
The Bear Case for TSLA
The bear case starts with the fact that Tesla is still losing money. The second quarter loss of $408 million brings total losses so far this year to $1.126 billion. Tesla thinks it can approach break-even by the fourth quarter, but analysts have heard this before.
Analysts don’t like a recent $1,000 price cut, to compensate for the loss of incentives, or that most U.S. sales now are of the less-expensive Model 3. “There is not a demand problem,” CEO Elon Musk insists. Analysts aren’t so sure, but it’s unclear which side is right at this point.
Then add the fact that chief technology officer J.B. Straubel, considered Elon Musk’s right hand, is now leaving the company. Since last November, Straubel has sold over $30 million in Tesla stock. It’s another worrisome sign for the bears.
Many bears become Tesla shorts. There are many Tesla shorts. Tesla has only 172 million shares outstanding, and a float of 130 million. But short interest on July 15 was 41.4 million.
That means 31% of the shares are held by people who’ve borrowed them, believing their price will go down. With shares down 14% after earnings, a lot of bears made money.
The Bottom Line
Most car companies sell for a small fraction of their sales. General Motors (NYSE:GM) has a market cap of $58 billion on 2018 sales of $147 billion.
But most car companies aren’t growing. Tesla is. The market now believes electric cars are the future, because of Tesla. The market now believes self-driving cars are the future, because of Tesla.
Love it or hate it, stories like Tesla are what make America great. But if you do buy shares here, get some downside protection in the form of options.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
