It seems that Elon Musk and Tesla, Inc. (TSLA) are never out of the news, that there is always something happening out in Elon’s electric car world, good or bad, that keeps us coming back to find out more. That ability to keep himself and his car in the news, and us engaged, is part of Musk’s genius, because as they say, there’s no such thing as bad press. So, let’s look at Tesla’s press, and then dive into TipRanks’ database to see what Wall Street’s analysts have to say.
Paring Back Positions, and a Stock Reaction
2019’s mixed news started back in mid-January, when Tesla announced layoffs amounting to 7% of the company’s total workforce. Now, this author grew up in Metro Detroit, so auto company layoffs are nothing unusual, but there was something strange about Tesla’s announcement.
They cut jobs, even though they delivered over 145,000 Model 3s in 2018, and even though Elon Musk is on record saying that demand remains high for the company’s vehicles. On the positive side, however, industry watchers have noted that the move will reduce costs for the EV maker, and that it coincided with a $2,000 cut in the price of the Model 3.
The Model 3 is supposed to be Tesla’s $35,000 car – as opposed to their premium-priced, luxury-oriented Model S and Model X – but the company has yet to sell any units of the 3 at the lower price. The current sticker reads $42,000.
TSLA shares dropped $60 in the wake of the layoff announcement, but quickly stabilized when it became apparent that the company was using the layoffs to streamline operations – a necessary cost-cutting step that allows them to continue pushing the Model 3 down to its target price.
Hitting and Missing in Q4
Tesla’s second hit came from the Q4 earnings report, released at the end of January. Like most of Tesla’s recent news, this one also cut both ways.
Looking at the headlines, EPS missed while revenues beat. At $1.93 per share, the earnings were significantly below the forecast $2.20. At the same time, the $7.23 billion revenue number blew away the $7.08 billion estimate. The company had to pay out $230 million in cash during the quarter, to cover convertible bonds, but was still able to improve its cash position by $1.45 billion. The improved cash position is a necessity, as the company has another $900 million-plus in convertibles to redeem in March.
For an unequivocal positive, Tesla reported a net profit of $139.5 million for the quarter. The company is predicting higher revenues for 2019, and expects total vehicle delivers between 350,000 and 400,000. Once again, Musk is putting his mouth where his money is, claiming that deliveries will increase, “even if there is a recession.”
A Twitter Problem
And Musk’s comments on production bring us to Tesla’s greatest liability as a business: Elon Musk’s Twitter habit. Let’s face it, the man’s Twitterrhea rivals Donald Trump’s in quantity and notoriety. Musk’s tweeting, however, has brought him unwelcome attention from the Securities and Exchange Commission.
Last August, SEC officials investigated Musk for several of his tweets, which the agency claimed were misleading and false, and had unfairly (for the average investor) impacted TSLA shares. To avoid prosecution, Musk eventually agreed to pay a $20 million fine and step down as CEO for three years. Earlier this month, Musk was at it again on Twitter.
He tweeted that Tesla will produce 500,000 cars in 2019 – a rate of 10,000 per week – and within hours had walked that number back, saying that the annualized production by the end of the year will be 500,000, while deliveries will be 400,000. The walk-back was a far cry from his initial comment, which implied both higher production and deliveries.
Musk also made news for his comments on self-driving vehicle technology. He said in a podcast that he is certain that, by the end of 2019, the technology will enable the automated car “to find you in a parking lot, pick you up, and take you all the way your destination without an intervention.”
It was quite a claim, and one that raised more than its share of eyebrows. Musk’s follow-up comments also drew out the skeptics: he claimed, referring to 2020, “My guess when we would think it's safe for someone to essentially fall asleep and wake up at their destination (is) probably towards the end of next year.”
Fall asleep at the wheel, and wake up at your destination? Is that a prediction from a man in a place to know, or is it pie-in-the-sky optimism? Either way, it’s typical of the way that Musk has promoted Tesla over the years, banking on the fact that notoriety and publicity are good for business.
Checking in with the Analysts
On February 11, TSLA shares saw a sudden jump of $7 per share when Canaccord Genuity analyst Jonathan Dorsheimer set a $450 price target and an eye-opening 48% upside for the stock. Dorsheimer based his upbeat outlook on the company’s recent performance – two consecutive quarterly profits, and increased vehicle production – saying, “We believe the last two quarters and recent guidance for Q1 have removed significant concerns for both production capability and profitability of the critical Model 3. As such, we see a more stable 2019 with far fewer concerns for investors in the company.”
He wasn’t alone in rating TSLA a buy. Daniel Ives, from Wedbush, noted that the company has started exporting the Model 3 to Europe: “We expect a steady stream of cargo ships currently in the Atlantic to hit Zeebrugge over the coming weeks as the long awaited flagship Model 3 is delivered to customers throughout Europe.”
Ives added that the overall profitability outlook for Tesla, especially in Europe, is “promising,” and that investors should keep a close watch on logistics and cost-cutting in coming quarters. He gives TSLA a price target of $390, suggesting a 28% upside.
Finally, in TSLA’s most recent rating, Joseph Osha at JMP Securities takes a look at the company’s competition, in the form of Jaguar’s I-PACE. The new Jag is the first all-electric vehicle to compete directly with Tesla in Europe (it is comparable to the Model X). Osha compares the Jag with Tesla, and notes that it will not likely disrupt the market. At least this once, Tesla benefits from being an early entrant to the Electric Vehicle world. Osha’s price target for Tesla is $406, implying an upside of 34%.
Overall, Tesla’s rating is a ‘Hold.’ While the recent strong reviews of the stock suggest that the analyst consensus may be turning around, the stock still shows a split of 8 ‘buy’ ratings, 5 ‘holds,’ and 8 ‘sells.’ Regarding timing, note that the last 7 reviews include 5 ‘buys,’ 1 ‘hold,’ and 1 ‘sell.’ The company’s performance on production and sales figures over the next several weeks will determine if this is the start of a new, optimistic, trend for TSLA shares.
Right now, the stock sells at $302. The average price target is $326, giving a modest upside potential of 7.76%.
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. I have no business relationship with any company whose stock is mentioned in this article.