Here's Why Tesla Shares Will Pop on Thursday (It's Not the Apple Rumor!)

Tesla continues to execute well on its bold vision.

Feb 19, 2014 at 7:00PM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

U.S. stocks lost ground on Wednesday, with the benchmark S&P 500 index falling by roughly two-thirds of a percentage point. The narrower Dow Jones Industrial Average (DJINDICES:^DJI) declined by 0.56%. Shares of automaker Tesla Motors (NASDAQ:TSLA) underperformed the broad market going into this afternoon's fourth quarter earnings announcement; however, the stock's performance in the after-hours session -- up 12% -- suggests the shares will substantially outperform the market tomorrow.


Before discussing the stock market's reaction, let's cover the headline numbers: On an adjusted basis, Tesla earned $0.33 per share, handily beating the $0.21 Wall Street analysts had been looking for. The company also beat on the top line, with revenues of $761 million -- 11% above the consensus estimate.

It's worth noting that the company was also profitable on a cash basis, generating $40 million in free cash flow (operating cash flow minus capital expenditures) -- the second consecutive quarter in which it is free cash flow positive. On the earnings call, CFO Deepak Ahuja told investors and analysts that the company expects to generate "significant cash flow," before adding that it was too early to provide any numbers.

Certainly, profitability continues to improve: Tesla's automotive gross margin of 25.2% (25.8% on the basis of generally accepted accounting principles) in the fourth quarter was also ahead of its own 25% target. Looking ahead, the company ratcheted up its target for this profitability metric to 28% (GAAP and non-GAAP), to be achieved in the fourth quarter of this year. On the call, CEO Elon Musk said achieving that figure is simply a matter of scaling up.

And speaking of scale, Musk said Tesla is in the process of building a second assembly line for the model S that should be operational in the second half of the year, which will be instrumental in raising production to 1,000 vehicles per week by year end, from 600 per week presently. Battery cell supply will, however, remain a constraint on production through the first half of the year, but it's expected to improve in the second half -- Musk indicated that the company will provide an update on this issue next week.

Are these results and outlook worth a worth a 10% upward revaluation in Tesla shares? As an old-school value guy, I simply don't see how one can pin down a valuation for this company with any degree of accuracy -- certainly not to within 10%. However, the company does bring together a principled, visionary leader with the capacity to execute on his vision -- a rare combination. The most recent set of results bear this out and add credibility to this story stock. I would not feel very comfortable owning Tesla's stock at its current valuation, but this looks like one of the rare "hyper-growth" stories that has a chance of growing into its valuation.

One thing I can say with a high degree of confidence, however, is that Apple (NASDAQ:AAPL) won't be acquiring Tesla Motors. A weekend report in the San Francisco Chronicle, according to which Apple's head of mergers and acquisitions, Adrian Perica, met with Elon Musk last spring helped Tesla's stock break $200 yesterday for the first time.

Given their positions, I'd be more surprised to learn that the two executives had never had a meeting together; without any additional information concerning the content of the meeting, I think we can assume it remained very "high-level." Sure, both companies are rule-breakers in their respective industries, but I'd argue that those industries are simply too far removed from one another to justify a tie-up. If you own Tesla shares because you're betting the company will be acquired, that's a mistake; besides, Tesla is proving it can do just fine on its own.

Better than Tesla: Here's the 1 stock you must own for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Alex Dumortier, CFA, has no position in any stocks mentioned; you can follow him on Twitter: @longrunreturns. The Motley Fool recommends and owns shares of Apple and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers