Tesla (NASDAQ: TSLA) has a long history of missing targets and falling short of expectations. Fortunately, TSLA stock investors are always willing to accept the company’s latest excuse.
In that sense, the COVID-19 outbreak has likely taken the pressure off management for the foreseeable future given that they have a brand new legitimate excuse for more lackluster numbers. Tesla’s third and fourth quarters of 2019 were both profitable, just like in 2018. However, the company’s first-quarter delivery numbers expected out this week will likely paint a different story.
Tesla will likely once again struggle to maintain business momentum beyond two consecutive quarters. In fact, Tesla hasn’t actually made much progress at all in the past year from a financial standpoint. Nevertheless, TSLA stock is up 90.2% in that time.
I’m guessing Tesla will miss its first-quarter delivery target by a wide margin. And once again, I’m guessing investors will forgive the company.
Tesla delivered a record 112,000 vehicles in the fourth quarter, up 15.4% compared to the third quarter.
For the full year, Tesla delivered 367,500 vehicles, or an average of 91,875 per quarter. Tesla had previously guided for 2019 deliveries of between 360,000 and 400,000, so the total of 367,500 deliveries was on the low end of its guidance range.
For 2020, Tesla has said vehicle deliveries should “comfortably exceed 500,000 units.” That’s an average of 125,000 vehicles per quarter.
For the first quarter, analysts are expecting Tesla to report 97,300 vehicle deliveries, roughly in-line with the third quarter of 2019. Wedbush analyst Daniel Ives says that a consensus target of 97,300 deliveries is too high. Ives estimates Tesla will report 82,000 first-quarter deliveries, roughly in-line with the third quarter of 2018. Ives also says 500,000 2020 deliveries is now off the table.
“While cash burn will be heightened in the near term due to this anomalous global situation, we believe the longer-term trends remain very healthy and $20 of annual earnings power down the road is achievable and still remains the target bogey to hit over the coming years for Musk & Co.,” Ives says.
So things aren’t great with Tesla right now but just wait for the future. This is the same line investors have been fed year after year after year. COVID-19 is just the latest excuse.
Looking Further Ahead
Argus analyst Bill Selesky, who was previously a TSLA stock bull, recently downgraded the stock. After factoring in the negative impact of COVID-19, Selesky cut his rating to “hold.” Like Ives, Selesky says Tesla won’t get anywhere near 500,000 vehicles in 2020. He is projecting 409,000 deliveries, up 11.2% from 2019.
“We still think that Tesla has strong long-term prospects. However, in the near term, we believe that consumers will focus on basic concerns (food, safety, employment, etc.) and expect consumer confidence and spending to take a major hit as consumers defer large discretionary purchases,” Selesky wrote.
I agree that most Americans are concerned more with paying for food and electricity than buying high-end vehicles at the moment. That’s why it’s surprising to me that Selesky is still calling for Tesla’s vehicle deliveries to grow 11% this year. That seems crazy to me at this point.
How to Play TSLA Stock
Last quarter, Tesla reported 10% EPS growth and 2% revenue growth. Those lackluster numbers came before the COVID-19 outbreak even started.
I recently compared Tesla’s valuation to both auto and tech peers and found it was overvalued in both cases. But I’ve said many times that Tesla does not play by the same rules as the rest of Wall Street due to its cult following.
I’m guessing Tesla’s Q1 delivery number will be horrible, much closer to Ives’ 82,000 prediction than to the consensus 97,000 prediction. I’ll go one step further and predict that Tesla won’t hit 400,000 deliveries in 2020. But as far as traders are concerned, don’t bet that more disappointments from Tesla will affect the stock negatively.
I doubt a big delivery miss this week will have much of a negative impact on Tesla’s share price. If it does, traders can expect investors to be buying the dip. Tesla investors are unique in that they only care about the story, not the numbers. They have a long track record of accepting pretty much any excuse, and COVID-19 is an extremely justifiable one.
In other words, I think Tesla has a free pass to report horrendous numbers for at least the next couple of quarters.
I continue to recommend traders stay away from TSLA stock on both the long and short sides. Its valuation is scary, but so are its investors.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market. As of this writing, Wayne Duggan does not hold a position in any of the aforementioned securities.