Regarding Tesla [TSLA], Let’s All Calm Down

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The third quarter is over, and the run up to the release of Tesla’s Q3 results has begun. There are a bunch of articles suddenly coming out discussing what those results will be like.

If you find yourself reading a bunch of those articles, it’s time to take a step back and calm down. When you’re reading any articles on Tesla, regardless of if you are a Tesla bull or bear, it’s worth remembering:

First, Full Disclosure

Before I go into the rest, I do feel like it’s important to highlight any biases that may influence what I write. It seems that a lot of people who write articles on Tesla don’t feel the need to do this. At best, it leaves some people questioning their motives. At worst, it obscures their real motives for writing.

Having said that, I write under a pseudonym. There is no proving what I say or don’t about this. And perhaps that should be the first thing to remember. Everyone has a bias. They can reveal as much or as little of it as they wish, or misrepresent it entirely.

I could right now say that I own 1,000 shares of Tesla and bought in under $30 a share in late 2011. Today, that would be worth more than a quarter of a million dollars. This could bias me to try to write about the stock to improve it’s position. Or, I could simply make this claim and write about how disappointed I am in some action the company did or did not take, and use my position to show how serious I was.

But, there is no guarantee that I own that stock.

So, the first thing to do if you’re reading an article is to pull out just the facts from the rest of it. An opinion is an opinion, no matter what the qualifications of the writer are claimed (or not claimed) to be. Look for actual facts, not opinions presented as fact.

My Disclosure

Having said the above, I’m going to highlight facts that shouldn’t matter if I have 1,000 shares or am shorting 1,000 shares. I still think it’s worth trying to highlight my own bias.

I own eight shares of Tesla stock.  When I started writing this article a month ago, I had four shares.  I have since doubled my position to a whopping eight. I feel like Tesla is in a position similar to where Amazon was about 15 years ago. There were real questions then if Amazon would ever make money to justify its valuation. Amazon could have gone bankrupt and an investor back then would have lost it all. Instead, a $1,000 investment in Amazon would be worth $40,000 today.

I bought my eight shares assuming there is a chance they will continue to skyrocket in the future, and if so, a potential $80,000 value in the future would be worth what was about a $2,000 risk today.

When I started writing this, I had a Model 3 on order.  I now have that Model 3. Simply put, as someone who used to do a lot of accounting, I have grown to hate the volatility of gas prices and auto repairs on monthly budgeting. At the same time, my previous car was quite clearly in need of replacement.

At this point, the Model 3 is the only electric car that has the ability to solve my gas price volatility problems while being able to serve as our primary long range car. If another manufacturer had a nationwide charging network, I’d be all ears.  None do.

I’d like the company to continue, but I don’t think I’ll be materially affected in either way if it doesn’t. If I lose the price I paid for the stock, I’ll be okay. If suddenly the company went bankrupt, enough Model 3s have been sold and enough demand exists that I believe they will be maintained. I might not get software updates, but that’s fine.

Now, having said that, we are in that period between Q3 and the Q3 call where we tend to have a flood of articles written about Tesla. Here are some handy things to remember:

Anyone Can Contribute to Sites Like Seeking Alpha

It’s weird to me just how much of a boogeyman the site Seeking Alpha plays to a lot of Tesla fans. Here’s what seems to be constantly overlooked — you don’t need to be any sort of expert to write for Seeking Alpha. In fact, if you visit its “Become a Contributor” page, this is how the site describes people who become contributors:

“Over 15,000 people have contributed articles over the years. These include individual and institutional investors, fund managers, college students, retirees, analysts and basically anyone who wants to share investment insights and ideas with our community.”

It’s also worth pointing out that active contributors get access to the “Pro” version of their site for free. The Pro site grants access to articles about more stocks than are covered basically anywhere else.

This leads to the pro and the con of Seeking Alpha. The site can be incredibly useful as an investment tool for small-time investors looking to create an investment strategy. It’s particularly good to get information on small stocks that otherwise don’t warrant coverage.

However, it’s not so great at ensuring that all of the information is accurate.

I used to work for a company that was publicly traded in an industry unrelated to transportation. My position was high enough in that company, which is valued in the billions, to be aware of nonpublic material information. In simple terms, I couldn’t buy stock on the open market without potentially violating insider trading rules.

I found Seeking Alpha during this time. It highlighted to me just how little the vast majority of people who wrote about our company there understood about it, as my inside information often was in direct conflict with articles that people were posting. Every once in a while there was an insightful article, usually by the author focusing specifically on the figures we released and breaking them down.

Having said that, Tesla is particularly quiet on earnings facts outside of the quarterly reports, meaning there is little to go on. Because of this, the majority of Tesla articles are written about things that aren’t facts, but are instead opinions based on circumstantial evidence.

We don’t know how many cars were produced last week. We don’t know how many are delivered each month. We don’t know how many are getting reworked. We don’t know how much demand there currently is.

We see a lot of opinions on each of these ideas in articles. A parking lot full of 1000 Model 3s can be the sign of a great production ramp, the sign of huge issues with the delivery process, proof that all of these have issues and need to be fixed, or the sign that there is no demand and these are spare cars. None of those are provable without having insider information, however, and those who have insider information are usually under agreements to not share that information.

So, if people are just formulating opinions, why do we get all these articles?

People Read Tesla Articles

It’s simple, really. If you want people to read and comment on your articles, writing on a high-profile company like Tesla helps. More than half of the top 20 articles at CleanTechnica.com were about Tesla last month. Not even close to half of the articles published on the site were Tesla articles.

Coming up with a controversial take, specifically a negative one, helps even further. Those who are shorting Tesla stock get a sense of confirmation bias from those articles, and share them with others who are bearish on Tesla. Those who think they are ridiculous head there to make comments about how the article is wrong or to scan for information they may be missing. Glowingly positive articles can have a similar response.

Seeking Alpha (and other sites like it) pay writers based on a formula that has a lot to do with page views. One thing I like about Seeking Alpha is they encourage research on under-covered stocks by giving writers a guaranteed minimum.  You can see the whole breakdown here.

So, as a writer, you can write an article on a high-interest stock like Tesla and expect to be paid more for it. The more controversial the article, the more likely you will get rewarded with a higher payment.

As I write this, in the past week, 14 articles have been published about Tesla on Seeking Alpha.  Crown Crafts, another stock that I follow, has had exactly 12 articles written about it in the past two years.

Mainstream Reporting Isn’t Great Either

You may read the above and think that I’m picking on Seeking Alpha. I’m not.

The company that I worked for when I found Seeking Alpha had massive financial issues and was undergoing a major reorganization. While I found the majority of Seeking Alpha articles lacking, I was surprised by how “experts” were further off.

It’s actually amazing to me that we trust these experts as much as we do. Mutual fund managers show up on the news to tell us their opinion of a company, but mutual funds rarely beat unmanaged index funds. There is a great article here that discusses why that is, but in short — why do we trust people whose funds beat index funds less than a quarter of the time?

It is my belief that the majority of the people running these funds promote their reasoning for liking or disliking a stock because it can materially affect the prices of the stock.

The company I worked for was often in the news during this time. I would hear so-called experts pontificating on deals that we were about to make and the revenue they would bring to justify their bullish feelings on it … even though no such deals were ever on the table. Other times, negative ratings on the company were cited with “facts” that were clearly made up when I looked at our internal documents.

At one point, we made the decision to close one of our major facilities, which had been underperforming and losing money for a few years. However, even though this move made total business sense and we had been trying to telegraph it for a year, no expert expected it.

So, What’s The Point?

Exactly what I started with. Whether you’re a bull or a bear, take a breath and think about what we really know.

If you’re a bear, yes, Elon’s behavior lately has been somewhat erratic. Some executives have departed for reasons not revealed. And the Model 3 ramp has gone significantly slower than what Tesla wanted one year ago.

If you’re a bull, signs point to the Model 3 ramp finally smoothing out. The third-party tear downs of the car have been extremely positive. The company has guided to be profitable starting this quarter, and Elon’s leaked emails point to that happening.

Finally, no matter who you are, we also know that the stock price is volatile.

Beyond that, it’s complicated. This is, of course, true of any billion-dollar company traded on the stock market. Try to separate the signal from the noise.

But don’t put too much faith in any one particular article. I won’t trust anything until we see what the Q3 results are, from Tesla itself. And yes, even that is open to interpretation.