Investor's Corner
Key takeaways from Tesla’s Q3 report and Q&A with Musk
Tesla released its third quarter earnings after the closing bell on Wednesday, surprising Wall Street after posting nearly $22 million in profit in the quarter. This is in sharp contrast to previous analyst expectations polled by FactSet which expected Tesla to report a GAAP loss of 53 cents a share in the third quarter, and an adjusted loss per share of 22 cents, narrower than the adjusted loss of 58 cents a share in the year-ago period.
Estimize, which crowdsources estimates from buy-side and sell-side analysts, fund managers, hedge funds and academics, expected Tesla to report an adjusted loss per shares of 4 cents. Estimates on E-Trade were between a loss of 4 and 7 cents. Noted Tesla Analyst Ben Kallo of Baird, expected non-GAAP earnings per share of $0.72.
All in all, given all these numbers, Wall Street was basically expecting a breakeven quarter.
Revenue
Total reported Q3 GAAP revenue was $2.30 billion, up 145% from Q3 2015. Tesla matched the higher end of the expectations. Another good news for the stock.
MarketWatch, in a live blog, called it a “Tesla earnings shocker – Actual profit”. Similarly, Bloomberg was surprised and posted the headline “Tesla Posts Rare Quarterly Profit as Musk Readies for SolarCity. The Wall Street Journal landed the news on its front page with the headline “Tesla Shares Jump after Posting Best Quarterly Sales Ever.”
I believe investors and analyst expectations were so low, that the clearly huge profit numbers were a “shock” to the market. This is Tesla first profitable quarter since the third quarter of 2014, a full 2 years ago, when Tesla eked out a minuscule profit of 2 cents a share. Tesla had reported losses ever since.
Stock Reaction (after hours)
The stock ended the day regular session at $202.24, down 10c for the day. The stock is down heavily from the $267 in early April, around the time Tesla started taking reservations for the Model 3.
The initial reaction of traders was very positive, as right after the quarterly results were published, Tesla shares rose as high as $215, about 7% in after-hours trading, with very high volume.
Source: optionhouse.com
The conference call did not change much as the after-hour session closed at $212, or up about 5% so we would expect a higher opening on Thursday.
Analysts polled by TipRanks have an average rating of hold on the stock, with an average stock price target of $199.13, about even from current levels at the close. These levels may well be adjusted tomorrow on the upside 5-7%, given the huge beat on expectations.
Source: TipRanks
Conference Call Q&A Top Quotes
Besides the financial report, investors wanted to hear about future production, which they are counting on to justify the still fairly high Tesla share price.
In the Tesla Third Quarter 2016 Update letter, Tesla noted that they “achieved record production levels in Q3, raising to 25,185 vehicles for an increase of 37% from Q2, and an increase of 92% from Q3 last year.” Also, Tesla “maintained guidance of 50,000 new vehicle deliveries for the second half of 2016 […] despite the challenges of winter weather and the holiday season.”
Best Quarter Ever
At the start of the conference call Elon Musk called the “quarter the best ever,” with fourth quarter expected to be great as well, with Q4 to be profitable even including non cash stock based expenses.
Musk called it “One of the best moments in Tesla history.” Elon also addressed rumors of widespread discounting as reason for profit: called the, “absolutely false,” and pointed out that “vehicle profitability increased without ZEV credits.”
Model 3
Elon reiterates volume production for Model 3 in second half of next year. The terms that the company are getting for suppliers is much better. Model 3 production and logistics are way faster, says Musk. He also forecasts an increase in gross margin, even after big beat on that metric in the quarter just reported. As a result, Elon does say he doesn’t expect to raise more capital in Q1 2017, though he won’t rule it out.
Musk dodged a question about Model 3 deposits: “That’s not something we comment on and not something that deserves merit,” he says.
Elon listed his 3 top priorities: Model 3 production schedule, advancing autopilot software, and ramp up of 100 kWh production line. After the call, Musk will be at the 100 kWh production line as “demand is high,” he says.
SolarCity
The SolarCity deal about “cash neutral” for Tesla, Musk says. If this is indeed found to be true, it may help with the approval of the deal coming up soon for vote by the shareholders.
“It’s important to have ‘tight control’ of solar panels production in order to have a ‘beautiful’ product. Confident it would have the best product at the best price, and one that would look better as well,” Musk says.
The solar roof product that will be offered by combined Tesla-SolarCity will “look better than a normal roof” and will be aimed at new houses being built and homes where the roof needs to be replaced anyway. Musk said that “People will be surprised by the product to be unveiled on Friday. It exceeded my expectation,” he says.
Full Autonomy
Elon said that “radar is moving from supplemental to primary sensor. Vision is still the main thing, but radar can be primary so you can take action based on radar, similarly as you can take action based on vision.” Elon also called out MobilEye for “issuing bullshit” on radar vs. vision argument in autonomous driving.
According to Musk, “Teslas on Autopilot are logging 1.5 million miles per day through all kinds of road conditions and weather all across the world.”
All in all no real surprises out of the conference call, and the good thing is that the stock held steady during the call. Definitely a good day for Tesla.
Elon Musk
Tesla locks in Elon Musk’s top problem solver as it enters its most ambitious era
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla has granted Senior Vice President of Automotive Tom Zhu more than 520,000 stock options, tying a significant portion of his compensation to the company’s long-term performance.
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla secures top talent
According to a Form 4 filing with the U.S. Securities and Exchange Commission, Tom Zhu received 520,021 stock options with an exercise price of $435.80 per share. Since the award will not fully vest until March 5, 2031, Zhu must remain at Tesla for more than five years to realize the award’s full benefit.
Considering that Tesla shares are currently trading at around the $445 to $450 per share level, Zhu will really only see gains in his equity award if Tesla’s stock price sees a notable rise over the years, as noted in a Sina Finance report.
Still, even at today’s prices, Zhu’s stock award is already worth over $230 million. If Tesla reaches the market cap targets set forth in Elon Musk’s 2025 CEO Performance Award, Zhu would become a billionaire from this equity award alone.
Tesla’s problem solver
Zhu joined Tesla in April 2014 and initially led the company’s Supercharger rollout in China. Later that year, he assumed the leadership of Tesla’s China business, where he played a central role in Tesla’s localization efforts, including expanding retail and service networks, and later, overseeing the development of Gigafactory Shanghai.
Zhu’s efforts helped transform China into one of Tesla’s most important markets and production hubs. In 2023, Tesla promoted Zhu to Senior Vice President of Automotive, placing him among the company’s core global executives and expanding his influence beyond China. He has since garnered a reputation as the company’s problem solver, being tapped by Elon Musk to help ramp Giga Texas’s vehicle production.
With this in mind, Tesla’s recent filing seems to suggest that the company is locking in its top talent as it enters its newest, most ambitious era to date. As could be seen in the targets of Elon Musk’s 2025 pay package, Tesla is now aiming to be the world’s largest company by market cap, and it is aiming to achieve production levels that are unheard of. Zhu’s talents would definitely be of use in this stage of the company’s growth.
Tesla analyst Andrew Percoco of Morgan Stanley teased the company’s dominance in its self-driving initiative, stating that its lead over competitors is “not even close.”
Percoco recently overtook coverage of Tesla stock from Adam Jonas, who had covered the company at Morgan Stanley for years. Percoco is handling Tesla now that Jonas is covering embodied AI stocks and no longer automotive.
His first move after grabbing coverage was to adjust the price target from $410 to $425, as well as the rating from ‘Overweight’ to ‘Equal Weight.’
Percoco’s new note regarding Tesla highlights the company’s extensive lead in self-driving and autonomy projects, something that it has plenty of competition in, but has established its prowess over the past few years.
He writes:
“It’s not even close. Tesla continues to lead in autonomous driving, even as Nvidia rolls out new technology aimed at helping other automakers build driverless systems.”
Percoco’s main point regarding Tesla’s advantage is the company’s ability to collect large amounts of training data through its massive fleet, as millions of cars are driving throughout the world and gathering millions of miles of vehicle behavior on the road.
This is the main point that Percoco makes regarding Tesla’s lead in the entire autonomy sector: data is King, and Tesla has the most of it.
One big story that has hit the news over the past week is that of NVIDIA and its own self-driving suite, called Alpamayo. NVIDIA launched this open-source AI program last week, but it differs from Tesla’s in a significant fashion, especially from a hardware perspective, as it plans to use a combination of LiDAR, Radar, and Vision (Cameras) to operate.
Percoco said that NVIDIA’s announcement does not impact Morgan Stanley’s long-term opinions on Tesla and its strength or prowess in self-driving.
NVIDIA CEO Jensen Huang commends Tesla’s Elon Musk for early belief
And, for what it’s worth, NVIDIA CEO Jensen Huang even said some remarkable things about Tesla following the launch of Alpamayo:
“I think the Tesla stack is the most advanced autonomous vehicle stack in the world. I’m fairly certain they were already using end-to-end AI. Whether their AI did reasoning or not is somewhat secondary to that first part.”
Percoco reiterated both the $425 price target and the ‘Equal Weight’ rating on Tesla shares.
Tesla stock (NASDAQ: TSLA) just got a price target boost from its biggest bear, Gordon Johnson of GLJ Research, who raised his expected trading level to one that is 95 percent lower than its current trading level.
Johnson pushed his Tesla price target from $19.05 to $25.28 on Wednesday, while maintaining the ‘Sell’ rating that has been present on the stock for a long time. GLJ has largely been recognized as the biggest skeptic of Elon Musk’s company, being particularly critical of the automotive side of things.
Tesla has routinely been called out by Johnson for negative delivery growth, what he calls “weakening demand,” and price cuts that have occurred in past years, all pointing to them as desperate measures to sell its cars.
Johnson has also said that Tesla is extremely overvalued and is too reliant on regulatory credits for profitability. Other analysts on the bullish side recognize Tesla as a company that is bigger than just its automotive side.
Many believe it is a leader in autonomous driving, like Dan Ives of Wedbush, who believes Tesla will have a widely successful 2026, especially if it can come through on its targets and schedules for Robotaxi and Cybercab.
Justifying the price target this week, Johnson said that the revised valuation is based on “reality rather than narrative.” Tesla has been noted by other analysts and financial experts as a stock that trades on narrative, something Johnson obviously disagrees with.
Dan Nathan, a notorious skeptic of the stock, turned bullish late last year, recognizing the company’s shares trade on “technicals and sentiment.” He said, “From a trading perspective, it looks very interesting.”
Tesla bear turns bullish for two reasons as stock continues boost
Johnson has remained very consistent with this sentiment regarding Tesla and his beliefs regarding its true valuation, and has never shied away from putting his true thoughts out there.
Tesla shares closed at $431.40 today, about 95 percent above where Johnson’s new price target lies.
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