Is Tesla Dying?

Elon Musk, Dogecoin enthusiast and Tesla CEO

We’re smack-dab in the middle of earnings season, and thus far, corporate revenues have given investors mixed signals.

Facebook (NASDAQ: FB) provided a hearty “earnings beat” last night, reporting better-than-expected financials after getting slapped with a record-breaking $5 billion fine.

But today, FB share prices are floundering, crushed by big-time “misses” from market bellwethers Ford (NYSE: F) and Caterpillar (NYSE: CAT).

With American manufacturers struggling, some analysts fear that a recession could already be upon us – causing investors to panic sell otherwise healthy stocks that effortlessly absorbed an FTC penalty.

And throughout this morning’s confusion, there remains one truth that almost everyone is certain about:

Tesla (NASDAQ: TSLA) is in serious trouble.

Despite CEO Elon Musk’s efforts to get his company ready for market, Tesla’s dismal earnings report revealed that the electric automaker is still too far “in the red”.

Their losses exceeded analyst expectations by a wide margin, clocking in at an adjusted loss of $1.12 per share vs. the predicted 40 cents. Worse yet, the company continues to hemorrhage executives, as Chief Technology Officer and co-founder JB Straubel announced his resignation.

As of midday, TSLA shares are down 13%, which according to Wall Street, is a fair response from investors given the circumstances.

“Automotive gross margins were well below expectations — and were the key metric [that] investors were focused on into the print given the record amount of deliveries,” said Goldman Sachs analyst David Tamberrino.

“We believe this will weigh on shares as investors question the company’s ability to maintain vehicle profitability while increasing demand — which is still an area for debate.”

And that’s just it, isn’t it? It’s not that Tesla’s cars aren’t popular, but that their loss margins are widening for some of their most hotly desired vehicles.

It’s an upsetting trend that many investors thought would go in the opposite direction as demand increased.

However, some folks aren’t quite as worried. In fact, Bernstein analyst Toni Sacconaghi thinks that the market’s overreacting to what should be seen as a very “neutral” report.

“Contrary to the 11% plunge in the aftermarket, we thought Tesla’s Q2 results were fine. Not great, but not terrible either,” Sacconaghi said.

He continued, adding that after some more digging, Tesla’s earnings revealed signals of future growth:

“While revenues were slightly below consensus, operating income and net income were largely in-line after adjusting for one-time expenses; Model 3 gross margins actually improved by ~250 bps.”

Even better, free cash flow (FCF), the cash left over after a company pays for its operating expenses and capital expenditures (CAPEX), easily beat expectations – something plenty of analysts overlooked.

So, as TSLA bulls come to grips with a shocking 13% plunge, they need to remember that much of today’s drop has been caused not by the earnings themselves, but the way that analysts are interpreting them.

In general, Tesla is making the right moves. They’re bringing in new customers, maintaining a “cool” mystique, and are working on slimming operating loss margins. Yes, total losses exceeded analyst expectations, but when adjusted for one-time expenses, they were far less disappointing.

Wall Street is taking Tesla’s earnings report at face value, and in doing so, they’re scaring off plenty of investors who really shouldn’t be as worried as they are.

That’s no surprise, though. Because as usual, “the Street” knows all. Anyone who speaks out against the analyst consensus is a fool, and over time, this belief has created a cult-like following of “zombie-eyed” investors.

Unless Tesla incurs any major surprise costs over Q3, I wouldn’t at all be surprised to see a significant “earnings beat” as a result. When that happens, you can be sure that analysts will act like they saw it coming from a mile away.

Even though as of this morning, they have the company one-foot in the grave.


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