Tesla Silences The Alarm Bells, For Now

| About: Tesla Motors (TSLA)


Tesla missed on both the top and bottom lines.

But who cares about fundamental info!

How is Tesla's future, specifically the Model 3, shaping up?

Tesla Motors (NASDAQ:TSLA) reported second-quarter results after the close Wednesday, as usual, the market couldn't care less about financials or metrics. But at this point should anyone be surprised? A year-to-date price chart will tell you that TSLA is down 6% over the last eight months despite missing delivery forecasts in both Q1 2016 and Q2 2016, multiple probes by the National Highway Traffic Safety Administration, and a general slew of negative headlines:

TSLA Chart

(If only you had bought in February)

If readers recall, that huge drop you see in February was the result of a general market selloff, which TSLA was especially affected by due to its speculative nature. Speculation. That is why TSLA is currently valued where it is. Do not view that as an indictment, though, because there is a lot of upside potential here should everything go according to plan. Specifically, Elon Musk's Master Plan.

Some readers might recall that in my previous articles on Tesla, I have emphasized just how important the Model 3 is to the future success of this company. To put it bluntly, if the Model 3 is not an absolutely stellar success, Tesla is toast. TSLA shares trade almost exclusively on Model 3 prospects. No one cares about the Model S, the Model X, net income, expenses, cash burn, debt, equity offerings, or anything else. None of those aspects of Tesla's business showed any positive signs in 2016, yet the stock has not cratered.

Speculation is the key, and as long as the big picture in Elon Musk's head stays intact and on track, TSLA will continue to float on thin air. So how is all that coming along? Everyone seems to want that answer, as Tesla's Investor Relations page was painfully slow after-hours due to heavy traffic. After minutes of loading, I finally made it to Tesla's Q2 earnings press release.

Tesla still expects to deliver 50,000 in the second half of 2016, which would meet its guidance of between 80,000 and 90,000 deliveries in 2016. However, Tesla delivered only about 30,000 in the first half of the year so this is a rather lofty goal. Though, at this point, investors should expect nothing less from Musk. Is it achievable? Perhaps not, but I think Tesla can get close enough that the only ones who will care are the bears.

In other news, non-GAAP gross margin increased 190 bps sequentially to 21.9%, the Model 3 is still slated to launch in late 2017, and capital expenditures are expected to $2.25 billion for the year. Tesla still has to survive another few quarters with massive cash burn and dwindling reserves, so another equity offering would presumably be on the table.

Tesla reported capital expenditures of $245 million in Q2 and $217 million in Q1. That means the second half of 2016 will result in about $1.8 billion more in capex. With operating cash flow at most reaching about a third of capex, it's not hard to envision another capital raise (or two) in the future.

Though, as the market has shown us, TSLA shareholders don't care about cash burn, financials, or the fundamentals. Which leads me to wonder why people keep using those things as rationale to short. But I digress.

Tesla also had a statement on its acquisition of SolarCity (NASDAQ:SCTY) saying:

Buying the largest residential solar energy installer and generator in the United States along with its unique panel technology will further our mission of accelerating the world's transition to sustainable energy.

I personally don't like the acquisition, but that's more because of the timing rather than the synergies and compatibility. I think Tesla and SolarCity are a logical pairing, but with Tesla burning through cash like wildfire and getting ready to launch a product that will make or break the company, I don't see how acquiring a company that also burns cash and that cannot even support its own operations, let alone Tesla's, makes any sense. But Elon has always been a dreamer. I guess you could say Musk is both Tesla's blessing and its curse.

On the Model 3 front, assuming that the Model 3 reservations number is still approximately 373,000, to say nothing of sales after production ramps up enough for those not on the reservation list, coupled with an ASP of $35,000 translates to about $13 billion in revenue. Maybe TSLA is overvalued. Maybe the stock will come crashing down. But there's no denying that consumers want what Tesla is selling.

Things to pay attention to on the conference call: Model 3 reservation figures, how Tesla will deliver 50,000 vehicles in 2H 2016, and anything that Elon Musk says. In that order.

And in line expectations, TSLA is currently flat after-hours despite missing on the top and bottom lines. Like I said, speculation.

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Thanks for reading!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.