Tesla Motors Inc. Beats Estimates and Abruptly Plunges 10%; What Are Investors Missing?

Here's why Tesla Motors Inc. is dropping this morning, and what the positive takeaways are.

May 8, 2014 at 10:35AM

Model S Photo Gallery
Tesla Motors' Model S charging. Source: Tesla Motors

Tesla Motors (NASDAQ:TSLA) posted its first-quarter results after market close yesterday and beat estimates for earnings and revenues alike. Thomson Reuters' consensus estimate was for Tesla to report earnings per share, excluding one-time items, of $0.10 per share on revenue of $699 million.

Tesla's non-GAAP results checked in at $0.12 earnings per share on revenue of $713 million. Of course, after beating estimates from all corners of Wall Street, Tesla shares abruptly fell more than 6% after hours and is down nearly 10% this morning. What gives?

Lofty valuation
I believe there are two parts to answering that question. First, Tesla is still in the very early stages of its long-term business vision and investors are increasingly finding it difficult to justify the stock's lofty valuation. At Wednesday's closing price its market capitalization was nearly half of General Motors (NYSE:GM) and about 40% of Ford (NYSE:F). Being valued at 40% of Ford is challenging for Tesla as the Blue Oval posted one of its most profitable years in company history with $8.6 billion in pretax profits last year.

Second, is that it seems everyone on Wall Street and in the media are focusing on Tesla beating estimates, but that isn't the entire story. Sure, excluding one-time items, Tesla beat earnings by recording $0.12 per share; but we're forgetting, or perhaps ignoring, those results are non-GAAP standards.

According to GAAP standards Tesla was expected to report a first-quarter net loss of $25 million, or ($0.15) per share, according to MarketWatch. Tesla's actual net loss checked in at twice that amount, a loss $50 million or ($0.40) per share, according to Tesla's letter to shareholders. Tesla beat non-GAAP estimates slightly but checked in well below GAAP estimates, and that I believe is a large reason for the sell-off.

As nearsighted Tesla investors headed toward the door in after-hours trading, there were still some positive takeaways for long-term investors. Tesla still has massive potential and its ability to disrupt the entire automotive industry with its innovative electric vehicles remains alive and well.

Assembly

Tesla's production rate nears 700 cars/week. Source: Tesla Motors

The good news
A key figure I was looking for in Tesla's first-quarter results was its production rate. If Tesla wasn't near 700 vehicles per week, it was going to make achieving its goal of 35,000 deliveries this year difficult -- keep in mind reaching that goal is a 55% increase in deliveries, year over year. Tesla noted its vehicle production was currently about 15% higher than at the end of the fourth quarter, which puts it at about 690 vehicles. Tesla still expects to improve that production rate to 1,000 vehicles per week by the end of this year.

One of the most common bear arguments for Tesla is that demand was already peaking for the Model S in North America. There was little to back these claims up, but during the conference call yesterday CEO Elon Musk made it clear that orders rose sequentially, and significantly, worldwide, including North America's 10% growth over last quarter's net orders. Make no mistake, Tesla's products are still roping in strong demand and the company is still supply limited.

Another positive tidbit was the automaker's situation in China. Tesla has just begun selling vehicles into the world's largest automotive market but has been met with high levels of consumer enthusiasm and goodwill. Tesla has also found it surprisingly easier to build its infrastructure once it had the government backing. Tesla is determined to make its market entry in China as successful and flawless as possible. The company's relentless focus on improving its products and taking care of the customer bode very well for its future in China, as well as globally.

Another great piece of news from Tesla was regarding its Gigafactory, which will enable the company to produce battery packs at a 30% discount. Panasonic has signed a letter of intent to being Tesla's partner in the venture, and the automaker expects to break ground on the first of two sites next month. That's great news for long-term investors expecting Tesla to remain on a tight schedule to deliver its next-generation vehicles, which will require a much larger supply of batteries and at a better cost.

Foolish takeaway
Ultimately, this was a good quarter for Tesla. What might be the most impressive takeaway is the company's ability to consistently make good on its claims. It met its goal of production rate, deliveries, infrastructure gains, automotive gross margins, and is still on schedule for its Gigafactory construction. While its valuation makes it difficult for potential investors to find an entry point -- or deliver quarterly profits good enough to satisfy short-term investors -- the long-term business vision is still very bright for Tesla. 

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers