Tesla achieved record EV production and delivery results in its just-completed third quarter.
The electric vehicle pioneer released its third-quarter numbers on Tuesday and the figures are impressive, with a total of 83,500 vehicles delivered and 80,142 vehicles built in Q3. That's 55,840 Model 3 autos delivered (up from 28,578 in the previous quarter) and 53,239 Model 3s built, according to a company release.
Tesla shares jumped this week on the news of Musk's settlement with the Securities and Exchange Commission and the strong production numbers. Musk decided to settle with the SEC for his "funding secured" tweet. He'll step down as chairman for three years and pay a $20 million fine.
The EV leader claims that demand for Models S and X remains high despite the "headwinds" of a 40 percent import tariff on its vehicles in China, the globe's largest market for EVs. To address this issue, Tesla claims to to be "accelerating construction" of its Shanghai factory, although announcing that unfunded Chinese factory has become an annual Tesla tradition. The stock price dipped in the last day over the trade risk.
Tesla plans to expand direct vehicle delivery to the home or office in order to address what Tesla called one of its main challenges, "outbound vehicle logistics," or getting cars into eager customers' hands.
The company added: “Our Q3 Model 3 deliveries were limited to higher-priced variants, cash/loan transactions, and North American customers only. There remain significant opportunities to grow the addressable market for Model 3 by introducing leasing, standard battery and other lower-priced variants of the car, and by starting international deliveries.”
Tesla is estimated to report its full third-quarter financials on November 7.
Attention, adulation and vitriol
Few companies attract the same level of attention, adulation and vitriol that Tesla has drawn.
The bulls believe in Musk and the corporate mission with a fervor that's unparalleled in the automotive or retail world. How many companies would be able to drum up (possibly illegally) a crowd of volunteers to help deliver its product, as Tesla did last weekend?
On the flip side, there's a small army of short-sellers and Tesla detractors going to great lengths to uncover details about the car company and expose what it believes are less-than-ethical practices.
Here's a sampling of voices from both camps.
The bull case
The Tesla bulls are optimists. First and foremost of the optimists is ARK Invest, which has a $4,000 per share prediction for the Tesla stock.
"We think they’re three years ahead of any other auto manufacturer,” said ARK CEO Catherine Wood, referring to Tesla’s battery technology. She also views Tesla as a software and "transportation-as-a-service" company, warranting the type of margins and price-earnings ratios enjoyed by software companies.
ARK analyst Tasha Keeney said that Tesla is "the only car company that does software updates." She added that when Tesla goes full-on autonomous, "You can put it on their Tesla network and make money off that car."
Keeney also tweeted:
Assume 70% of Teslas are on the Tesla Network and by 2023 and there are about 4MM Teslas that are capable of autonomous at that point. Assuming a software-like EBITDA multiple of 14, that’s $700B in enterprise value from #autonomous alone.— Tasha Keeney (@TashaARK) August 24, 2018
Ross Gerber, an investment adviser, is a ubiquitous Tesla long, sketching out a $571 share price. In response to the latest production news, he tweeted:
Awesome job @elonmusk and the Tesla team! We knew you could do it! You just beat the record for annual #EV production in one qtr! Kids - 80k times 4 qtr is 320k cars This gets you to $25 bil in rev. Times 4 multiple gets you to $571 a share. $tsla https://t.co/CS8UBxWDkd— Ross Gerber (@GerberKawasaki) October 1, 2018
Galileo Russell is a Tesla long who won some small measure of fame after asking questions on a Tesla conference call. "Elon Musk is one of the smartest leaders in the world right now," said Russell, calling him a visionary, first mover, disrupter, and an incredible engineer and businessperson. He said that the company is "still in startup mode" and still massively building out production.
After touring the Fremont factory, Ben Kallo of Baird Investors maintained his $411 price target, saying that the Gigafactory creates "a significant barrier for competition and manufacturing capability should be a competitive advantage for TSLA over the long term."
Kallo wrote: "We believe strong fundamentals should drive shares higher.”
Bernstein analyst Toni Sacconaghi believes that Tesla is on track to meet Model 3 production and profitability targets.
Somewhere between bull and bear
Gene Munster, managing partner at Loup Ventures, believes Tesla will "likely be cash flow positive (excluding the impact of non-recourse lease financing) and slightly profitable." Munster cautions that the fourth quarter "will not enjoy quite as much of a vehicles-in-transit tailwind" and Q1 2019 will face a demand headwind from the declining U.S. tax credit.
Loup adds, "Bottom line is cash is tight."
Bears see stock between $0 and $88
Some short-sellers and online sleuths have been way ahead of the mainstream financial media in examining Tesla's corporate breaches.
The New York Times just discovered Twitter regular the Shorty Air Force, which has flown or droned over Tesla's Fremont facility (amongst other spots) and found sizable scrap and garbage piles, as well as evidence of outdoor painting. The shorts have also located odd clusters of Teslas gathering dust in Lathrop, Calif. and other towns across America.
Lawrence Fossi, a portfolio manager, used to write about Tesla under the pseudonym Montana Skeptic until he was doxxed by Musk. He's appeared on a number of podcasts of late. He said that there's a "stunning weakness in [Tesla's] fundamentals...yet the share price rises." He added that Musk and the board's "biggest breach of fiduciary duty" is to not have launched a Chapter 11 plan or "some type of organized prepackaged bankruptcy" or reorganization.
Montana Skeptic challenged the Tesla bulls to show him a reasonable share price valuation analysis that warrants the current price or even values it at $100.
Fossi added that most All-Wheel Drive model backlog is filled and "new order volume is tiny." He sees a "crisis in demand" with Tesla overestimating the market for a $50,000 to $60,000 car. He believes that Q3 "will be a good story" with record sales and production and possibly even a GAAP profit courtesy of "massaged" numbers and Zero-Emissions Vehicle credits. But, he asserts, "2019 is a catastrophe," and he wonders why a capital raise wasn't undertaken earlier.
Last month, Nomura Instinet analyst Romit Shah called Tesla "no longer investable," citing the CEO's "erratic" actions and the resulting "tainting" of the Tesla brand. Shah, once a bull, lowered his stock rating to "neutral" from "buy."
Gabe Hoffman, general partner and Tesla short at hedge fund Accipiter Capital, was quoted in The New York Times as saying that the long wait for replacement parts suggests that Tesla has very few in stock, adding, “To me, that shows a company in financial crisis."
Gordon Johnson, managing director at Vertical Group, has a price target of $88 per share for the EV builder. "We believe SolarCity was illiquid and going bankrupt" and is currently "liquidating its assets," said the analyst on the Hidden Forces podcast.
Johnson added, "The roof tiles do not work" and noted a lawsuit by several ex-SolarCity employees claiming that accounts were faked to inflate the company's worth prior to the Tesla acquisition.
Johnson cites analyst firm Navigant and claims that, contrary to the ARK investment thesis, Tesla's autonomous driving and radar sensing is at the "bottom of the heap" compared to Waymo or General Motors. He added that competition is coming and that "every battery EV with 200 miles of range is competition to Tesla." He also believes that the company is running out of U.S. backlog this or next month.
Citing Theranos as an example, Johnson suggests that the recent Tesla executive (and chief accounting officer) diaspora is the "canary in the coal mine" of a company in crisis. He sees Tesla's Q3 financial performance as its "last hurrah" abetted by "some accounting chicanery bordering on fraud."
Fasten your seatbelt
Tesla's next few quarters should be even more action-packed than the current spectacle.
Musk will likely remain volatile, and the board can't remain passive forever. Although the SEC 420 tweet suit has been settled, there is still the possibility that the SEC will launch other investigations or that the Department of Justice will get involved.
Tesla has to continue to produce, ramp and improve quality. Competition in electric vehicles is truly getting underway. The company's tight cash situation would seem to warrant a capital raise, which will surely be difficult and dilutive.
At the same time, the company could be on the brink of really bringing its mass-market EV goal to fruition.
That's likely to leave many Tesla watchers asking themselves: Am I a bull or a bear?