Tesla's Earnings Miss - Emperor Musk Has No Clothes!

Philip Davis profile picture
Philip Davis


  • As we expect, Tesla's earnings were worse than expected.
  • Our April 4th short is looking good.
  • An oil and gasoline play to get your summer off to a good start.


A month ago, on April 4th, I wrote: "Tuesday Turmoil - Tesla Valuation Reaches Peak Insanity" in which I noted how ridiculous it was to value Tesla (NASDAQ:NASDAQ:TSLA), who struggle to make and sell 25,000 cars in a quarter, at the same price as GM (NYSE:GM) or Ford (NYSE:F), who each make 25,000 cars PER DAY, (that's 90 times more). The companies are not even playing in the same ballpark (though they are playing the same game, so investors get confused) - it's like betting your son's undefeated little league team can take on the Yankees - there are other factors involved than just their record against other children.

Still the masters of spin, Tesla's shareholder letter, which looks more like an advertisement for their cars, touts "Record vehicle production" and rightly assumes that the average TSLA investor can't do math (or they would not be TSLA investors) and that 25,051 is only 169 cars more than last quarter's 24,882 and it's getting really, REALLY hard to see a path that gets them to 200,000 cars by the end of this year.

Last Q they said they had "short-term production challenges starting at the end of October and lasting through early December from the transition to new Autopilot hardware" as an excuse for their lack of significant growth from Q3 but now, 169 more cars is a proud record, which is really interesting since last Q they claimed that 6,450 cars from Q4 were "in transit" and would be counted as deliveries in Q117. If that's true, then did Q1 orders drop by 6,300 cars? Will we ever know the truth with this company?

Not only are sales a major disappointment but the purchase of Solar City from Elon's cousin is causing more expenses and more losses and also something no one is discussing but should be - dilution! That's right, last year, TSLA only had 132,676,000 shares outstanding and now they have 162,129,000 shares outstanding, that's 23% more shares than last year - not to mention all the warrants attached to their debt offerings. That's the kind of thing a penny stock does - not an established company. Had TSLA not diluted their shares, their losses per share would have been TWICE AS BAD as what was expected (-.82), not just 50% worse than expected.

Back on April 4th, when TSLA first crossed $300 and I raised the red flag, we knew it was going to be a tough short into earnings but yesterday I reiterated our TSLA short spread, which was trading yesterday as follows:

  • 5 long TSLA June $300 puts at $11.25 ($5,625)
  • 5 short TSLA June $270 puts at $3.53 ($1,765)
  • 6 short TSLA June $300 calls at $22.08 ($13,248)

As of yesterday's close, that spread had a net credit $9,388 to initiate and would make an additional $15,000 if TSLA finishes below $270 on June 15th. We initated in April with a $9,100 credit so we had a small loss heading into earnings but this morning that trade should be looking significantly better with TSLA heading back to the $300 line, which is STILL ridiculously overvalued for a company that burned $622,435,000 of cash in Q1 and will likely burn over $1.5 BILLION next quarter, after which they will announce a delay in the Model 3 and then all Hell will break loose - you heard it here first.

Remember - we can only tell you what is going to happen and how to make money trading it - the rest is up to you!

Meanwhile, General Motors , a company that MADE $2.6 BILLION in PROFITS in Q1 (that's right, TSLA's entire sales, in profits alone!) is still being valued lower than TSLA and it's just as ridiculous today as it was a month ago when I laid out the following bullish GM options spread idea:

  • Sell 10 GM 2019 $32 puts for $4.25 ($4,250)
  • Buy 25 GM 2019 $28 calls for $7.25 ($18,125)
  • Sell 25 GM 2019 $35 calls for $3.60 ($9,000)

We added that trade to our Options Opportunity Portfolio and, so far, it's flat but we are pretty sure that either TSLA is drastically overvalued or GM is drastically undervalued and probably both are right, so we're very comfortable with both of our auto sector calls now that we've seen the actual earnings of both companies. Oh wait - are they still called "earnings" when they are actually horrific losses in Tesla's case?

Also back on April 4th, we were shorting oil at $50.75 and this morning it hit $47, which is a $3,750 per contract gain for the shorts but, unfortunately, we flipped long at $48.50, so this downturn is as much of a surprise to us as anyone. Our average entry is now long 6 contracts at $48.24 and we intend to add a couple more down here and bring the average down to $48 on 8 long contracts, unfortunately down $8,000 at $47 but we anticipate $50s into the holiday weekend and, assuming we take 4 off the table even at $48, that would be a nice $8,000+ gain instead.

We also like Gasoline (/RB), which is testing $1.50 but the play is /RBN7, the July Futures contract, as we definitely want to hold those until Memorial Day weekend, when Summer Driving Season officially kicks off. With the economy stronger and jobs more plentiful - we can expect AAA to pre-announce record driving plans that should cheer up energy traders (though miles driven won't really lead to record consumption due to better fuel economy - so the rally will be short-lived). Also, as another wild-card, OPEC is meeting May 25th in Vienna - the Thursday before Memorial Day - and it's almost a certainty they will announce extended production cuts.

This article was written by

Philip Davis profile picture
Philstockworld.com is the fastest growing stock and option newsletter on the Web. "High Finance for Real People - Fun and Profits" is our motto and our Basic and Premium Chat Sessions offer readers a chance to speak to Phil live during the trading day as well as authors like Optrader, Sabrient, Income Trader and Trend Trader - who send out Alerts during the market sessions and discuss trade ideas live with Members. We even have a new low-cost "Trend Watcher" Membership that lets readers view our chat sessions without directly participating a great solution for people who want to test-drive the site and profit from our experience! Trend Watchers get to view all of our Chat Archives, weekly Webinars - as well as the amazing PSW Wiki, which gives you Phil's recent opinions and trade ideas as well as technical and fundamental analysis of hundreds of stocks that we follow. Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)

Disclosure: I am/we are short TSLA, SPY, DIA, QQQ, IWM, NFLX, AMZN. 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.

Additional disclosure: Positions as indicated but subject to RAPIDLY change (currently mainly cash and an otherwise slightly bearish mix of long and short positions - see previous posts for other trade ideas). Positions mentioned here have been previously discussed at http://www.Philstockworld.com - a Membership site teaching winning stock, options & futures trading, portfolio management skills and income-producing strategies to investors like you.

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