Mind Blown: Analysts Hugely Wrong On Tesla In Q3, Wrong On Tesla For Years, Yet Still Bearish On Tesla
The power of denial is an amazing thing.
Yes, there is always plenty of debate possible about the value of a company — whether its market cap and stock price should be higher or lower than today. But there isn’t debate about something else — history.
Tesla’s Q3 financials report is one example of many showing how incorrect Wall Street analysts can be about something even simple cleantech bloggers can understand. Well, actually, we were also too pessimistic about Tesla’s Q3 finances, but Wall Street analysts were woefully, horribly, embarrassingly pessimistic.
Tesla’s financial results were a blowout, specifically because of how pessimistic analysts had been in the weeks and months prior.
As many of you read this week, a major Tesla short seller made an entire U-turn just before the Q3 shareholder letter and conference call. He actually cited four CleanTechnica charts and ended up writing a report like we at CleanTechnica would write, diametrically opposed to what he had argued in previous months. It seems that stunning Tesla sales charts plus some simple math broke through.
Two big parts of that calculation were how many Model 3s Tesla sold and how much money it made on each one, on average. Based on information circling around the interwebs (that was not that hard to find), we estimated that the Model 3 pulled in just over $3 billion in Q3. The short seller who made the U-turn estimated essentially the same. And Tesla’s shareholder letter ended up putting the actual figure right above $3 billion as well.
Charts by Michael Grinshpun for CleanTechnica
Chart from Tesla showing Q3 revenue (which we didn’t have before yesterday) and unit sales (which we got a couple of weeks ago) from yesterday’s Tesla shareholder letter.
Could other analysts not find solid estimates of the sales data and figure out the math?
I would hope any Wall Street analyst I turned to for investment advice could have done so.
There’s other math to complete to figure out company costs and other revenue, but it’s not rocket science. Throw in a bit of caution if you like. Put the assumptions on the lower end of what’s possible if you are really nervous. Like I said above, even our supposedly optimistic, bullish financial forecast underestimated what Tesla ended up showing. But there’s really no good excuse for the wildly pessimistic and off-the-mark expectations of Wall Street analysts.
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Okay, some of you may have already decided that top Wall Street analysts can’t be trusted — not even to find some basic stats and do simple math. But I thought I’d give some of them a chance. I expected (apparently foolishly) that some of them would change course like the Citron Research guy did in the face of overwhelming evidence.
Furthermore, Elon Musk, Deepak Ahuja, and others explained lucidly last night the key points analysts have been missing about consumer demand, production, and finance.
Alas, even after weeks of publishing our #Pravduh reports and seeing more anti-Tesla nonsense than I’ve ever seen before, the analysts (and the media) shocked me.
CNBC has a comprehensive rundown of what “every major analyst” had to say in response to Tesla’s report and conference call yesterday. There is some sign that they learned something from the “surprising” results, but it also seems like the learnings didn’t go forward as much as backward. It’s like learning you did something wrong but then not really changing course to not repeat the mistake in the future.
Now, let me be clear — I’m long Tesla [TSLA] and am definitely not offering any kind of investment advice. But it’s hard to sit back and ignore such hilarious “expert commentary” quarter after quarter.
Let’s look at just a few of those statements for a laugh or two.
As a quick summary, 5 of the major Wall Street analysts recommended buying Tesla, 8 recommended selling Tesla, and 5 recommended holding.
♠ “We question if this is not as good as it gets from a near-term upside surprise for shares,” Goldman Sachs said while recommending “sell” for Tesla.
Of course you would! You question every surprisingly positive result every time. And continue to be surprised when future results are again surprisingly positive. It’s your modus operandi. It’s almost as if you would rather be unrealistically pessimistic on Tesla than accept what its CEO and CFO tell you.
Note that the bearish statement followed this admission: “Another better than expected quarter from TSLA, with Automotive gross margins well above our and consensus forecasts on the back of improved manufacturing costs, reduced labor hours for the Model 3, and helped by a high variant/trim mix for the product.” So close to learning a huge lesson!
♠ Ryan Brinkman of J.P. Morgan writes while recommending “sell” for Tesla, “we remain Underweight, both on valuation and concern the new stronger trajectory to earnings and cash may prove less sustainable than the market is likely to presume, including given several headwinds.”
Again, the future is perhaps not so bright in their eyes, even as they note that Tesla’s Q3 numbers were much better than expected. Here are the words that came right before the pessimistic outlook: “We expect a strong positive reaction to Tesla’s materially better than expected 3Q results reported Wednesday after the close, with revenue, gross margin, EPS, and — most importantly, in our view — free cash flow all tracking better than was expected. Our estimates rise, on the sooner than expected flipping from loss to profit generation, and from cash burn to cash flow, as we now expect Tesla’s first full year of positive earnings to be in 2019 vs. 2020 prior.”
So, they went from a hard sell to a soft sell?
♠ Colin Langan of UBS, who has only ever recommended selling Tesla and whose work we tore down twice in recent months, yet again had a gloomy outlook on Tesla: “While TSLA claims it will be profitable and cash flow positive going forward, we do not see that as likely with declining prices. TSLA also claims to have no plans for a capital raise; however our view on a Q4 or 2019 capital raise is unchanged as Tesla will need to invest to expand Fremont roduction, build a China factory, ramp Model Y and expand infrastructure.”
That’s right — keep not believing the CEO and CFO. That is a great recipe for success.
Many of the analysts noted — not accidentally I’m sure — that the stock price would probably (surely!) rise on the quarterly results — just before explaining why they think Tesla is a sell. In my opinion, that’s just an attempt to look more credible. State the obvious because it’s obvious and then act as if the previous record of recommending a sell when they should have recommended a buy will make sense now, “after all the positive surprises are gone.”
Like the slow automakers Elon Musk sadly noted had not paid enough attention to Tesla and taken his advice for years, it appears the analysts are eager to not learn. They are eager to claim that they still know better and Tesla still can’t be trusted, even though all evidence is to the contrary.
You have to admit — it’s sort of funny.
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