Do you know what drives me crazy about Wall Street and Tesla Motors (NASDAQ:TSLA)? The all-too-common big-time knee-jerk reactions over short-term details. Here's an example from earlier this month: In Tesla's fourth-quarter letter to shareholders, the automaker announced it had met production goals of 35,000 units for the full year, but missed deliveries by 1,400 in the fourth quarter. Here are real-headline examples of the reaction.
"Tesla: Time to Throw in the Towel?"
"Is the Tesla Bubble Bursting?"
"Tesla Sales Are in the Slow Lane"
Sell, sell, sell! Run for the hills! Abandon ship!
Really, though, sales in the slow lane? Show me another electric vehicle selling for six figures that's driving into consumer garages faster than Tesla's Model S. Go ahead, I'll wait.
Another thing I saw was that Tesla's projected "staggering" capital expenditures of $1.5 billion in 2015, to fund growth efforts, scared investors. Those spooked investors helped send the stock price as much as 9% lower the day after fourth-quarter results were released. I don't get being scared of the planned jump in capital expenditures, either. We, as long-term investors at The Motley Fool, should cheer the fact that Tesla is going to spend capital like it plans on becoming a massive automaker.
All of that said, Tesla checked in with a $108 million loss for the fourth quarter, and the company probably won't be profitable until the end of the decade. The shortfall in Q4 deliveries negatively affected its performance and Tesla failed to meet analyst estimates for both the top and bottom lines. It burned more than $450 million in cash, which is roughly 23% of its total pile of cash and cash equivalents, and growth in China hasn't been as robust as expected.
Simply put, owning Tesla isn't for the faint of heart.
However, Tesla is in the early innings of what could be an incredible long-term revolution as electric vehicles transition from selling to early adopters to selling to mainstream consumers. Here's what we know: The Model S is an excellent product, and still had 10,000 orders on the books when the calendar flipped to 2015. We know that Tesla's Model X has 20,000 reservations and is going to hit showrooms later this year at a time when gas prices are low and SUV sales are surging. We know that Tesla's third-generation car, which will be affordable for mainstream consumers, is only a couple of years away. We know that Tesla expanded its Supercharger network by 400% last year and that businesses across the U.S. are signing up to become "Destination Charging" locations. Maybe most important, at least for now, we know that Tesla is led by a pretty genius guy with bright and game-changing ideas.
The key to Tesla's story and future lies in the company's ability to profitably scale production. Despite delivering slightly fewer than expected units in 2014, Tesla still expects to hit its guidance of 55,000 deliveries in 2015 and 500,000 in 2020 -- and even "millions" in 2025. As long as management believes it can accomplish such a feat in 10 years, and Tesla hits its delivery guidance going forward, that's what is important. As long as we arrive at our final destination as planned, I'm not concerned about speed bumps along the way.
Around the same time as Tesla released its fourth-quarter data, Apple set a record by reaching a market capitalization of more than $700 billion -- the highest value for any U.S. company in history. Apple's prominent rise was due to its revolutionary smartphone, the iPhone -- you might have heard of it. Take a second to rewind the clock and look at a couple of headlines from 2007, when the iPhone hit the markets.
"Why Some Apple Fans Won't Buy the iPhone"
"Apple's iPhone a Tougher Sell in Europe?"
Those predictions sure went well, didn't they. (Here's a fun one from more recent times: "iPhone Death Watch.")
While I won't go out on a limb and say Tesla is destined to become the next Apple-like rags-to-riches story, Elon Musk isn't afraid to. He even commented that his company is on track to rival the $700 billion market cap of Apple in 10 years, and that he bets it will happen.That pace speaks more to the long-term enthusiasm that has propelled the stock price rather than its near-term earnings potential. While the odds are incredibly stacked against Tesla becoming that large of a company, the possibility is there. Isn't that a risk worth taking?
It sure seems worth the risk to me, and while I can't say it's a good buy at these prices I certainly wouldn't consider selling, which is why a 10% sell-off after fourth-quarter results seems foolish. That's what drives me crazy about Wall Street: It doesn't see the forest for the trees.