Tesla (NASDAQ:TSLA) is a polarizing company. Therefore, TSLA stock is going to have more than its share of volatility. If that doesn’t fit your investing profile, it’s okay to sit on the sideline. Likewise, you may believe analysts are not appropriately rewarding Tesla for being the innovative company it is. If that’s the case, I can’t say you’re wrong.
Investors are either selling (or not buying) Tesla for what they believe it is or buying Tesla for what they believe it might be. Either way, it’s becoming clear that investors can’t get away with blaming Tesla because of the scrutiny it receives every earnings season. At some point, investors must reconcile that TSLA stock will or won’t be exactly what they want it to be.
With Tesla Stock, Fair Is Foul and Foul Is Fair
Tesla reported deliveries of 97,000 vehicles in the third quarter. Deliveries are Tesla’s proxy for sales. The 97,000 number was a 16% year-over-year increase. It was also a new record for the company, surpassing the 95,200 vehicles delivered in the second quarter.
However, the TSLA stock price dropped 7% on the news. Why? Because the company itself, notably CEO Elon Musk had previously stated to Tesla employees that a goal of 100,000 deliveries was possible.
Formerly bullish JMP Group analysts downgraded the stock to hold. It also issued a statement saying it was “the first time since covering the stock that we found ourselves wondering whether demand growth (for Tesla’s cars) might be leveling off.”
The Model E Is Putting Pressure on Margins
But another reason why investors may have shied away from Tesla stock was that, as was the case in Q2, many of the vehicles delivered were for the modestly priced Model 3. Those deliveries were up 42% on a year-over-year basis at 79,600. Deliveries of the company’s higher-end Model S and Model X models were down by 10,000 at 17,400.
Sales of the Model E are holding strong. This is good news for Tesla since some analysts were forecasting that organic demand was going to decline. Instead, the company looks like it’s holding steady with good numbers. But since the Model E is Tesla’s modestly priced car, it is putting the company’s margins front and center as investors try to figure out what increasing Model E sales mean for the company’s elusive goal of sustained profitability.
What Will Tesla’s Earnings Report Show?
TSLA is expected to report a YOY decline in revenue when it reports Q3 earnings on Oct. 23. That would be the first time in over a decade that Tesla had a YOY decline in quarterly revenue. Analysts surveyed by FactSet are expecting Tesla to report sales of $6.45 billion. That will be down from $6.82 billion during the same quarter in 2018.
Analysts are also projecting TSLA to report negative earnings with a loss of 46 cents per share. Estimize, which is a crowdsourcing platform that gathers estimates from a cross-section of academics and financial/investment professionals, is estimating Tesla’s loss to come in at 32 cents per share.
Don’t Fault Tesla for Not Being What You Want It to Be
The Tesla stock price is down about 24% for the year as of this writing. Prior to Oct. 18, TSLA shares had risen for nine consecutive sessions. Tesla has issues. It’s still struggling to manage their production. It’s still not likely to record a profit in the near future. It is facing pressure on its margins from sales of its “budget” Model E.
The reality of Tesla is complicated. It’s an automaker in an age where the definition of what an automobile may look like is changing. Do conventional automaker metrics fit? Will they ever fit? Right now, they are all investors have.
And based on those metrics, Tesla will likely be reporting sales numbers that will challenge investors who believe that profits matter.
As of this writing, Chris Markoch did not have a position in any of the aforementioned securities.