Tesla faces revenge of the Barnacles Flufferbots and Bonehead Bears
Head-on
Tesla reported a deeper-than-forecast first-quarter loss of $709.6m on Wednesday evening, its worst ever. That’s the basic reason for the stock tanking as much as 7% on Thursday, but it’s worth noting the profligate group’s shares were initially on course to avoid a severe flogging in the wake of its results.
Both ways
The Q1 loss per share was $4.19 on a GAAP basis, far worse than the $4.04 loss per share analyst consensus compiled by Thomson Reuters. On a non-GAAP basis, the loss expected was $3.58 per share, but Tesla also missed that, with a $3.35/share loss.
Quarter from hell
It was a torrid quarter. There were multiple revisions of the group’s initial 5,000 units a week target for the intended mass-market Model 3 sedan, and the group missed them all. Tesla said it produced 2,270 Model 3s in the last week of April and that it aimed to take the pain to fix its fabled production “hell”.
It remains unclear though, how long and costly production delays that kyboshed production will take to fix after Musk acknowledged planning errors in developing the Model 3 production line. Tesla said it will shut down its Fremont, California factory for 10 days this quarter, aiming to hit the original 5,000 Model 3s per week target. The group said it would turn a profit in the second half of the year, turning slightly negative Model 3 gross margin largely flat in Q2, and “highly positive” in H2.
Fork in the road
Despite missed targets and optimistic-sounding near-term goals, the stock was, for a time overnight headed higher, after some investors judged that the $750m the carmaker cremated in Q1, leaving a cash balance of $3.2bn, was not as bad as feared. That meant breathing space before another possible capital raising that could clobber the stock even more. With negative free cash flow of $1bn by quarter end though, widening from $277m in Q4, it’s difficult to see how the group can avoid having to raise more debt or equity capital at some point. At the last quarter’s rate the group could run out of cash completely in a year.
Either way, investors’ mood changed after less-than-professional outbursts by Musk during Wednesday’s post-earnings conference call. The CEO described analysts at various times during the call as "Barnacles”, “flufferbots”, and “bonehead bears” and eventually refused to take their questions. Together with doubts around the credibility of Tesla’s new production and financial targets, the impression of a company going through a difficult stage led by an unreceptive CEO, was unattractive.
The stock trading some 7% lower for the year by last session’s close emboldened Tesla bears, perhaps including those of the bonehead variety, some of whom made a tidy sum last year, when Tesla was for a brief time the most shorted stock of its size on the U.S. stock market. Currently sellers are focusing intensely on strong attempts by buyers to arrest the decline from an all-time high last September just short of $390. Having based at 241.9 earlier this month, corroborating a consolidation low in mid-March, TSLA was on a tear between the end of last month, before crashing into resistance that coincided with a high in September 2014 at $291.4, another in July 2015 ($286.65), followed by a high close to the 2015 one at $287.4 in mid-Feb 2017, and former double bottoms on a monthly basis in May and July last year equating to 303.48. The year’s decline has also created a channel which also capped earlier attempts to recover, though with a violation of its lower falling trend line the picture could be about to get more disorderly. The long-term trend represented by Tesla’s 200-day moving average is no longer supportive with the stock breaking below it in March and the threshold reversing a prior rise to point lower. The stock’s battle with $303 will be its most pivotal one in the very near term.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
For further details see our full non-independent research disclaimer and quarterly summary.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.
City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.
City Index is a trademark of StoneX Financial Ltd.
The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.
© City Index 2024