Published on February 4th, 2019 | by Zachary Shahan0
Tesla’s Insanely Awesome Growth Not Impressing People Who Expected Much Worse … Wait, What?
February 4th, 2019 by Zachary Shahan
Full disclosure: I’m long Tesla [TSLA]. I’ll briefly explain why at the end of this article.
Tesla reported financials for the 4th quarter of 2018 and for all of 2018 last week. The company also gave some guidance for the coming quarters. The results included Tesla’s second consecutive quarter of profits, which came after months of Wall Street analysts and the financial media claiming that Tesla was about to run out of cash (and might even go bankrupt), couldn’t possibly post a profitable quarter in 2018 (and certainly not two quarters of profits), and would need to raise money again to fund its massive “cash burning” production processes.
At that point, the financial press could have admitted to poor reporting and faulty forecasts, and could have expressed its shock at a second quarter of profits from the Silicon Valley company. The financial press could have even congratulated Tesla on the “unexpected success” in the face of so much naysaying and apparently unwarranted criticism. Generally speaking, that didn’t happen.
Aside from simply covering the financials in a positive light and adjusting their narratives after months of false forecasts, the press and analysts also could have highlighted any one of these insane stats:
- Tesla, 6 years after producing its first mass-produced car, had the #1 top selling luxury vehicle of any class in the US in 2018 — the first time an American car company has had that honor in decades.
- Tesla sales grew 3,679% from 2,400 in the 4th quarter of 2012 to 90,700 in the 4th quarter of 2018.
- Stunningly, Tesla had the 4th best selling car in the US in December and the 5th best selling car in the 4th quarter, despite the fact that it was a relatively expensive luxury car. It was actually the only luxury car in the top 17.
- The Tesla Model 3 was the top selling car in the US from an American car company in December and in the 4th quarter.
- Tesla heavily outsold Jaguar and Porsche globally in the 4th quarter, almost selling more than both of them combined.
- The Tesla Model 3 accounted for 32% of all small + midsize luxury car sales in the US in December.
- Tesla’s two sedans, the Model 3 and Model S, are the two safest cars in the USA according to NHTSA scores and totally crush their class competition in terms of sales as well.
Major media outlets didn’t post such headlines and hardly touched these enormous achievements. Instead of positive headlines highlighting these milestones, several major media outlets published headlines like these:
- Tesla May Have Much Less Cash Than Reported: Johnson
- Tesla’s Surprise CFO Exit May Add Fuel to ‘Conspiracy Theories’
- Tesla is ‘lacking a catalyst’ to help it swing to profitability
- Tesla earnings miss expectations, shares slip
- Why Did Tesla’s Profits Trend Lower In Q4?
- Tesla Earnings: This Is a Hypergrowth Company?
- Tesla’s profits disappoint, renewing concerns about growth
I’m sorry, but I’m confused how analysts and reporters who claimed Tesla absolutely couldn’t show two quarters of profit, or even one, were disappointed by Tesla’s profits.
I’m confused how anyone can insinuate that Tesla has not seen rapid growth rates.
As one Tesla shareholder put it, “It’s just so effing funny to hear ‘TSLA missed analyst consensus on earnings’. Name one analyst who last year predicted that Tesla would not need to raise cash in 2018 and beyond to fund growth. Name one analyst who last year predicted TSLA would be profitable in both Q3 and Q4. Name one analyst who predicted FCF positive in a massive way for those Q’s.” In my opinion, this shareholder appropriately added, “The level of douchebaggery has reached epic proportions.”
Another Tesla shareholder offered additional context to put an exclamation mark on how absurdly the goalposts have been moved with regard to analyst forecasts for Tesla, and the associated Tesla stock price: “This is ridiculous. We were at $350 at 2018 Q2 call and two profitable quarters later we’re at $300. Doesn’t make any sense.” While you can say that expectations — related to micro factors as well as macro factors — changed for various reasons, thus leading to the difference, the overall exasperation seems warranted when you consider that no major analyst expressed belief in the middle of last year that Tesla could show two profitable quarters. Quite the opposite, they were all claiming that Tesla would “burn cash” indefinitely and needed to raise or borrow more money. Yet these same analysts are now disappointed by Tesla’s two profitable quarters? They are now disappointed that Tesla brought in less money than “they expected” … when they previously expected Tesla to bring in no profits at all? Wait, what?
Yet another Tesla shareholder brought in even more useful perspective by showing that Tesla’s share price has been hovering around the range of $270 to $340 on Tesla earnings report and conference call days since the call for Q4 2016.
When you consider that essentially every major Wall Street analyst during every quarterly conference call before Q3 2018 had practically no faith that Tesla would achieve the production, sales, revenue, and profit ramp that it has now achieved, it is a tad shocking that the market hasn’t reacted a bit more strongly to Tesla firmly beating Wall Street estimates over that timeframe.
It’s also astounding that the media has decided that instead of highlighting and reflecting on its massive failures evaluating Tesla and reporting on its evolution, many reporters and editors are doubling down on doom & gloom stories. No lessons learned? Still no faith in Tesla’s own forecasts? Why not? Tesla has been proven right time and time again, while the doom & gloom stories and forecasts from short sellers have been proven misguided time and time again.
I’ll end with my favorite post of all on this topic from yet another Tesla shareholder who find the market’s and the media’s responses to Tesla’s positive results baffling:
“Funny how that works: all of 2018 was about how the ‘Tesla cash crunch’ and ‘Tesla debt barrier’ is going to cause cash flow problems, making a forced equity raise of billions of dollars or a bankwuptcy inevitable.
“Now that Tesla is generating massive amounts of cash and is paying back debt it’s something to ‘look beyond’ and we should worry about future demand — while EV markets are exploding in size everywhere on the planet.
“Reminder, this is how massive cash flows from operations, continuously reinvested into the company, turned Amazon into a trillion dollar company:
“Note how Amazon carefully managed their net income to never be overly large, so that they can reinvest the maximum and can grow at the maximum possible speed. Over a time period of 20 years.
“This is why Wall Street wants to ‘look beyond’ cash generation.”
I’m long TSLA for a few reasons. The first and most important reason is that I heavily support its mission — hastening the transition to a clean energy economy (or “sustainable energy” economy as Elon Musk tends to put it). Another reason is that I think Tesla is out-innovating everyone else in some of the fastest growing and most promising markets on the planet. And a third reason is that I think much of the stock market still doesn’t understand Tesla’s leadership and potential, leading to a dramatic undervaluation for the company. As Tesla achieves more and more of its goals, the story will clarify for others and I personally believe money will pour into the stock. Lastly, when TSLA was ~$30, I had similar impressions and thought TSLA was an obviously good investment, yet I was not set up to invest back then and “missed” the opportunity to ride the wave up to $100, $200, and beyond. At some point, I realized I should just jump in as soon as possible and I did so — and then later did so again, and again, and again.
I’ve covered Tesla much longer than I’ve been a Tesla investor, and anyone with a tendency toward cynicism should realize that those of us who enthusiastically write about Tesla and invest in Tesla do so for the same core reason — because Tesla inspires us and we have much faith in its future. If you’re still confused, go back to the beginning of this story and read it again.