3 Items the Shortsighted Media Doesn't Understand About Tesla Motors Inc. Stock

A number of recent reports on electric-car maker Tesla Motors (NASDAQ: TSLA  ) serve as excellent examples of key differences between the shortsighted media and the long-term minded buy-and-hold investors. On three particular Tesla topics that often make headlines, the media appears to be somewhat clueless.

Model S outside of the entrance to Tesla's headquarters in Palo Alto, Calif. Image source: Tesla Motors

Battery fires
Over the 4th of July weekend, a stolen Tesla ended a run from the police in an accident, reportedly driving 100 miles an hour. The Model S was split in two and the battery went into flames. Similar to the market reaction to previous fires, the stock sold off meaningfully on Monday, closing with a 3% loss (though it's worth noting that the stock is up about 49%, year to date).

There's no merit for any market reaction to an accident like this, period. In March, Tesla CEO Elon Musk said the "odds of a fire in a Model S, at roughly 1 in 8,000 vehicles, are five times lower than those of an average gasoline car and, when a fire does occur, the actual combustion potential is comparatively small." Even with the most recent fire, this statistic has likely improved since then.

For long-term investors, the overall safety, and lack of fires or explosions for the Model S is evidence that electric cars can offer a greater safety profile than their internal combustion engine peers.

Quarterly nonsense
Going into every Tesla quarterly earnings report, there's discussion about how the company may miss guidance. But the credibility of such speculation amounts to nil.

While it's always possible that Tesla could miss guidance, it is unlikely. Further, Tesla's deliveries in the short-term play almost zero role in the company's potential to become a mass-market player.

Tesla's Fremont, Calif., factory. Image source: Tesla Motors

How is missed guidance unlikely? First, management has considerable vision into the next quarter when it reports guidance. This gives Tesla's quarterly delivery forecasts great credibility. When Tesla reported first-quarter results, for instance, it was just a week away from the halfway point of Q2. Second, as a supply limited company, Tesla said it had already sold out of second-quarter production. Finally, Tesla has visibility into "the growing pipeline of in-transit cars to Asia and Europe."

Over the long haul, however, quarterly deliveries are just a rounding error compared to what Tesla wants to accomplish with the help of its Model X and a more affordable electric car. Instead of focusing on quarterly deliveries, long-term investors know that the most important story for Tesla is its plans related to its game-changing pipeline of vehicles.

Demand
But even if Tesla missed quarterly guidance, it would simply signal a short-term blip in production, having nothing to do with demand. The media has repeatedly confused Tesla's deliveries with demand. Thinking this way can lead to the false conclusion that demand in North America has peaked, simply because North American deliveries didn't grow sequentially in recent quarters.

Model S. Image source: Tesla Motors

But it's Tesla's orders that speak about demand for this supply limited company -- not deliveries. While Tesla doesn't always speak up regarding orders, it did say in the first quarter letter to shareholders that there was "a significant sequential increase in worldwide net orders for the Model S." Specifically for North America? Net orders grew sequentially by more than 10%, Tesla said.

Those following Tesla stock should stay focused on net orders, the Gigafactory that will build batteries for Tesla's planned affordable car, and Tesla's vehicle pipeline. Model S battery fires, this quarter's deliveries, and quarterly demand speculation offer no insight into the big picture for the stock. And for a stock like Tesla with wild growth priced into the stock, it's the big picture that matters.

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  • Report this Comment On July 12, 2014, at 5:10 PM, so75 wrote:

    Finally! An article about Tesla that is accurate and not knee-jerked, sensationalized nonsense.

  • Report this Comment On July 13, 2014, at 12:59 AM, CrazyDocAl wrote:

    What a joke. First off Tesla is in a factory that has the ability to make 500,000 cars a year and yet demand is so low they make about 5% of it's capacity. In fact US demand is down, sales in new markets is what's keeping the number of cars sold from dropping. Tesla needs the boost it will get from the model X.

    Secondly you do not price stock by what a company could do long term. That's a joke. That would be like drafting a high school player to your team because he could be a great player in 10 or so years. You value it based on the assets a company has, it's current sales, it's projected future sales, it's technology, and it's track record on making a profit. Tesla falls short on a lot of those items.

    Even it's future doesn't look that bright. Enough other mfgs have released their own versions of electric cars to prove that if the market is there they will all jump in with both feet and Tesla will struggle to remain relevant. Do you really think that the German brands will not offer models that will rival Tesla diluting Tesla's sales once there's a viable market?

  • Report this Comment On July 13, 2014, at 2:25 AM, ashaskevich wrote:

    Media is not shortsighted, Media is Stupid and left wing.

    When a business is doing good, and the evidence is the price of the stock, the media hates them. When the business is doing bad, they ignore them. And when there is something different, like a battery fire, then media is all over the event.

    The media basically has not credibility and some of the news services will be out of business in 10 years just like GM will be out of business in 10 years.

    Now as far as some "German" brands coming up with an alternative, that is dreaming. That brand will have to use the Tesla Supercharging network or a competing network. In other words, bow down to King Elon.

    That would be a sight to see.

  • Report this Comment On July 13, 2014, at 8:10 AM, Chatkhan wrote:

    @CrazyDocAl

    What do we know about the demand for Tesla?

    Anybody you talk to didn't even hear that this kind of car exists!

    Anybody who owns this car doesn't even want to hear about any

    other car in the world - ever!

    Anybody who test drove Tesla wants to buy it now, and about 25% of them

    do end up ordering. What happens to the remaining 75%? They just can't

    afford it yet or don't have enough credit score to get it financed so they're

    trying to go make it. There is NO(!) advertising and there is no sales push and

    no in-house creative financing. The banks are not very open for lending.

    I know a friend of mine who wants to buy his Tesla now so much but didn't score

    enough to get financed, so he offered Tesla a deal using his paid up house as a collateral but couldn't make a deal, because Tesla is overbooked with cash buyers.

    The demand for Tesla? It is growing exponentially by the word of mouth

    and it is virtually UN-LI-MI-TED! Tesla itself is scared of this demand because

    It doesn't have enough batteries to satisfy the current levels of preorders and

    It keeps things quiet in the meantime. 500,000 car factory in Freemont ?

    Tesla is a startup, building it's own capital exponentially and singlehandedly

    covering the whole world with a new power infrastructure. That's not a joke!

  • Report this Comment On July 13, 2014, at 12:48 PM, JackB125 wrote:

    Excellent article! I agree 100%.

    Tesla seems to not only make the news media do nutty things, but it also has the ability to split people into two opposing camps: 1) Enthusiastic Admirers (often called "fan-boys"); and, 2) Angry Detractors (often called "haters"). Some of the previous comments to this article are a good case in point of this second ability.

    What is it about this particular company that can cause such strange news coverage & strong feelings?

  • Report this Comment On July 13, 2014, at 1:33 PM, fool1953 wrote:

    I wish i could afford one of these but I can't. Reminds me of solar power. It is a great concept but due to technology it doesn't appear to be practical now. Both need government subsidies to survive. The Tesla S does have a niche market for the very rich. To get the price down they have to reduce battery price and also come up with a bigger capacity battery. I really like the idea of the Volt. Don't have to worry about running out of charge. Of course that isn't a profitable car either, lol. But a lot more affordable then the "S". Who knows he could make this the most profitable and largest car company in the world.

  • Report this Comment On July 13, 2014, at 3:33 PM, Haggy wrote:

    You don't draft a high school student to your team because you don't know what he will be like in 10 years. You don't buy a stock based on a ten year outlook if you plan to sell it in a few months or even a few years. There's something called investing, though, and if you do that, you don't buy it with the intent to sell it in the next few months or years based on the knee-jerk reaction of the market. Long term is everything.

    You wouldn't run a company without looking to long term profitability, and if all you care about are sales for the next quarter, even if it sabotages your long term future, your company won't be around long.

    If you wouldn't run a company that way, you shouldn't buy a company that way. Investing is buying a company, whether it be a few shares or the whole thing.

  • Report this Comment On July 13, 2014, at 6:53 PM, jasmith909 wrote:

    There is a major problem with Tesla the media is underreporting -- patent dumping. That was done in an effort to drum up competition, because Musk can't build his battery factory, since Tesla is virtually the only automaker utilizing the technology.

    Investors should ask themselves - why the lack of competition? Were companies holding out in an effort to pressure Musk into releasing his patents, or have they been testing battery technology for decades and have been unimpressed with the results? Have they deemed other alternative energies more cost-effective & efficient? Notice, whenever Musk is questioned about hybrids & biofuels, he gets uncharacteristically defensive.

    The danger is battery technology is not the future. Companies that have blown more money on research and development than Tesla has made in its entire history are pursuing technologies other than battery power. And making the patents public was Tesla's last ditch effort to get more players into the game. Because given the current dynamic of the industry, their long-term prospects are untenable. They won't survive unless some of the major players adopt their technology. That's what Musk is banking on with the patent release. But even that is based on certain assumptions -- namely, that major, multi-national automakers with all the money & resources in the world, & government backing to boot, are paying attention to a boutique automaker like Tesla at all.

  • Report this Comment On July 13, 2014, at 11:50 PM, btc909 wrote:

    The only reason I don't OWN a Tesla is a price of the vehicle. How I would so miss paying $65-$70 a pop 4 times a month just to fill the gas tank. I can figure out how to generate electricity but I will never be able to do anything about acquiring gasoline without paying whatever the per gallon price is.

    Soon to come in Kalifornia is the Global Warming Tax, the Federal Gas Tax, AND the low Sulfur Gasoline Tax.

    The same BS would be repeated all over again with Hydrogen.

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