Wednesday, November 6, 2013

Tesla (TSLA) - Earnings Happened; Stock Falls Hard... But Do You Know The Facts About this Company?

TSLA is trading $150.43, down 14.9% with IV30™ down 20.9%. The Symbol Summary is included below.

Provided by Livevol

Tesla Motors, Inc. (Tesla) designs, develops, manufactures and sells electric vehicles and advanced electric vehicle powertrain components. Tesla owns its sales and service network. The Company is engaged in commercially producing a federally-compliant electric vehicle, the Tesla Roadster

This is all about earnings, future projections and a pretty large market reaction. I have written about TSLA before, you can read the prior posts below by clicking on the titles:

8-8-2013: Tesla (TSLA) - Now a $20B Firm Off of Earnings Blow Out; How Wall St. Absolutely Blew It; But I didn't... And I'm Just a Guy...

5-9-2013: Tesla (TSLA) - Earnings Explosion Spectacle Hides Vol Shift -- This is a New Company -- A Paradigm Shift is Complete

5-15-2013: Tesla (TSLA) - May Skew Stays Parabolic; Vol Diff Opens... And Some Stuff You May Not Have Known...

5-29-2013: Tesla (TSLA) - This is a New Company; The Paradigm Shift Continues; Part 3 of 3.

This is an incredible story, really, but let's start simply with the Charts Tab (two-years) below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

The stock has risen from ~$30 to an annual high of over $194 and now down to ~$150.  In that time, TSLA has grown from a  ~$4 billion dollar company to over $18 billion even after the drop today.  There has been remarkable stock appreciation and the demand for their vehicles has literally been insatiable at times.  In fact, TSLA's production capacity is the problem, not demand.  Let's dive into the earnings results with some news snippets, below.

Tesla shares are trading down some 10 percent despite reporting a third quarter that saw earnings of 12 cents per share beat by 1 cent and revenue of $603 million beat by $68 million. Further, Tesla reports that its gross margin was 22 percent in the period, nearing its goal of a 25 percent margin by the end of the year; Tesla delivered 5,500 Model S sedans, ahead of its own guidance, though it fell short of some high-flying estimates. The big takeaway from the conference call is that it will be production volume constraints — not demand constraints — that will pose the biggest issues in 2014.

Source: WALL ST. Cheat Sheet via Yahoo! Finance; Tesla’s Strong Quarter Fails to Impress, Office Depot Completes Merger, and 3 More Hot Stocks, written by Justin Lloyd-Miller.

I'll repeat a line from the above which is critical: "The big takeaway from the conference call is that it will be production volume constraints — not demand constraints — that will pose the biggest issues in 2014."

Remember that...

Now, onto more news...

As weekly production rates continue to improve, and Tesla continues to outperform its own guidance for vehicle deliveries, there's no reason to believe that Tesla's growth story is any different today than it was before the company reported third-quarter results. Despite the Street's emotional disappointment, Tesla's Model S remains a blockbuster, and its global expansion continues rapidly.

The company is still supply limited. In fact, demand doesn't seem to be an issue at all for Tesla. "Demand exceeds supply, despite no advertising, no discounts and no paid endorsements," management said in Tesla's third-quarter letter to shareholders. And investors shouldn't let Tesla's third-quarter sequential decline in North American deliveries worry them, either. Musk explained in the earnings call that reservations in North America were actually up sequentially, as the company constrained North American deliveries in order to fulfill European orders.

Tesla's making enormous progress on its international expansion. With Supercharging infrastructure in Norway already reaching nearly the entire population, Germany is Tesla's next international priority. Tesla says it will have half of the country covered with even faster 135-kW Supercharger stations by March 2014, and have complete coverage by the middle of 2014. Beyond Germany, Tesla expects that, by the end of 2014, "the entire population of the Netherlands, Switzerland, Belgium, Austria, Denmark and Luxembourg and about 90 percent of the population in England, Wales and Sweden will live within 320 km of a Supercharger station," management said in the third-quarter letter to shareholders. In China, Tesla has already begun taking orders, and plans to deliver its first vehicle in the country next year.

Finally, at a 10,000-foot view, this stock is ultimately priced for its more affordable third-generation car, which Tesla CEO Elon Musk hopes will resonate with the mass market -- and nothing in the quarter suggested this story has changed.

Source: The Motley Fool via Yahoo! Finance; Why Tesla's Big Sell-Off Means Nothing, written by Daniel Sparks.

Sounds like the same story, right? Demand is booming, production is the issue, or as I called it earlier, insatiable demand. And finall, one slightly different view of the results:

Tesla (TSLA) reported earnings yesterday and they were fairly disappointing, especially in the number of cars delivered. Let me start with that, the ugly part.

Tesla delivered "just over" 5500 cars in the third quarter of this year. While their own guidance was for 5000, the market expected well over 6000. Rumors floating on the Internet about their production rates caused some people (me included) to believe the possibility of even more cars delivered.


The reason provided by Tesla for the ugly number was constraints on battery production, which leads us to the next revelation from Tesla. It is considering building "with partners" a gigantic battery factory, the largest in the world. With a final capacity roughly equivalent to the entire world's 18650 production.

Let's move on from the ugly to the bad. For next quarter Tesla gave guidance of "just under" 6000 cars delivered. Tesla started the quarter at 550 cars a week and from some pictures posted from the factory is currently at a level of about 570 a week. Since we are in the middle of the quarter we can assume that 570-575 will be the average for this quarter giving us about 6840-6900 cars produced.

At this rate, unless something changes with ramping up cell production by Panasonic, Tesla might not make 40,000 cars next year. Tesla also did not provide much in the way for 2014 guidance and reserved that for next quarter.

Source: The Motley Fool via Yahoo! Finance; Tesla Results: The Good, The Bad, The Ugly And Some New Predictions, written by Daniel Sparks.

I'll let you guys read the "good" from that article, but I think we all get the point here. Or do we?

Let's try it in plain English, and please do let me know if you disagree:

TSLA shares are down b/c while the demand for their product is high, they can't keep up with production.

That's it... They didn't hit some weird rumor numbers that were floating around the internet, but that's just... well, rumors and speculation. Now the stock did benefit from those rumors (maybe), and thus the stock drop could make sense. But let's not lose sight of the bigger picture:

This is a firm with demand outpacing production for a $70,000 - $100,000 per unit product.

So, is TSLA a buy? I dunno. Is it a sell... I dunno that either. But I do know that this is a firm with demand outpacing production for a $70,000 - $100,000 per unit product.

I've heard of worse places to be for a company. Haven't you?

Finally, let's turn to Options Tab, below.

Provided by Livevol

Across the top we can see the monthly vols are priced to 62.81% for Nov, 57.45% for Dec and 57.41% for Jan.  The 52 wk range for IV30 is [34.01%, 93.64%] so the current level is in the 43rd percentile.  There is a chance the the implied continues to drop a bit as the stock reaches a new equilibrium (even if it's for the short-term).  Watch the stock price drift on this one... Just as the stock price may have risen too quickly b/c of speculators on "rumors" of production, the stock may fall too quickly on the unwinding of those positions.

This is trade analysis, not a recommendation.

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