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Sunday, May 6, 2018

Tesla: "Don't Buy It If Volatility Is Scary"


Any idea who said that title? None other than Tesla's CEO Elon Musk himself on his recent earnings call.  He said a lot on that call. He called for a profit in Q3, he told off some analysts and he warned investors to watch out for volatility. We take it all seriously.

Q3, Q4 Profit? Oh My

Oh my that would be amazing. The stock would absolutely catapult.  Our earnings model doesn't see how they do it though. They've pretty much missed key targets for Model 3 along the way.  It would take a huge move up in gross margins and cuts in operating expenses to get there.

Instead we have big earnings downside versus the Street. We can't get there. Not yet.

Don't Need Cash

On this one we believe him.  Our earnings model actually shows they may be in the clear on cash needs. That's obviously a very bullish call.

But, "Don't Buy It If Volatility Is Scary."

I'm sorry but, yes, volatility is a scary thing. Markets tend to go down when volatility goes up. People are usually glued to the VIX as a contrary indicator to see where markets might go. Bull markets are smooth markets. Bear markets are volatile markets.

So if this was a comment for those that think volatility is a scary thing, that's pretty much everybody except maybe stuntmen and stuntwomen. Investors, public investors, tend to enjoy calm.

Maybe private investors can handle financial volatility but generally public companies stand for stability.

But Tesla is different in that way. It trades publicly but it's really a giant unicorn with a ton of interest, rightfully earned.

But investors should understand that this is not your typical public investment. The risk profile is much higher.

Conclusion

We plan to review to better understand how they can reach profitability. We'll be back.






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Reading Comprehension
On the recent Tesla earnings call Elon Musk:
A) chewed out a bunch of institutional analysts.
B) said the next Gigafactory is planned to open on Mars in 2019.
C) told investors don't worry his plans are a 100% lock.
D) took questions from Donald Trump through YouTube and Twitter.

Please answer in comments.


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2 comments:

  1. A), but that's less "Reading Comprehension" than "Retention" and it's only because I didn't break my meds in half this morning. But, really, isn't he bringing on much of the volatility himself?

    As well, your point -- "...it's really a giant unicorn with a ton of interest, rightfully earned" -- pairs well with his berating of analysts, showing he's just fine as the CEO of a well-funded startup, but not ready to deal with the realities of facing Wall Street.

    ReplyDelete
    Replies
    1. Hi Robert. The reading comprehension is just a quiz for fun to easy the market volatility pain.

      I think his behavior on the call, thinking more about it, is his happy to be in a position of potentially not needing funding any more and it came out in the wrong way. not good but may not be important but was fun to listen to.

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