Tesla misses sales target for 2016, but Wall Street doesn’t care

Subject: "...but Wall Street doesn’t care"

It's more accurate to say that Wall Street, as in "business analysts," DO care. They're the ones raising alarm bells about Tesla Motors never having made a profit, not presenting a viable business model (their current one depends on subsidies, grants, and cash from selling stock to stay alive), and always missing their own self-imposed sales and growth targets.

*Shareholders*, on the other hand, are the ones that keep on buying and bidding up Tesla stock!

Elon Musk said late in 2016 that they're on the road to profitability, and won't have to go to capital markets (that's business-speak for "raising more cash by selling more shares.") Tesla fans issued a resounding "Woo-hoo!" and many "I tolja sos". Business Analysts said (paraphrased) "according to what we're seeing, including Tesla's accounting, they're going to run out of cash. Their only options will be shut down or tap into capital markets yet again. We believe they'll issue another batch of shares in early 2017 to stay afloat."

So here we are, in early 2017, and Tesla is now making noise about soon issuing more shares, which will dilute the value of existing shares. Tesla stock buyers are eating it up, believing it's a good investment. And it IS... for as long as lots of people *believe* it is! Blackberry shares used to be $144.56 when lots of people believed they were worth it. They tumbled when people stopped believing. They never recovered.

Steve - I have been saying this for over two years - and I completely agree. However - you should also point out that the LONGER it takes for Tesla to ramp up production - the CLOSER other manufacturers come to producing their own EV's to compete ON PRICE. WE both know that Teslas should be much higher prices for a company that has NO other cars that make profits (Unlike GM) - and if they were priced as they should be - they would not be selling as well.

Along the lines of Tom's comments, an interesting read is Motor Trend's side by side comparison tests of the Model S versus the Bolt. The Model S is clearly quite a machine in their view. However they were clearly surprised how good the Bolt is at 1/2 the price of the Model S. Until the Model 3 arrives they conclude the Bolt is the electric vehicle that the non luxury buyer will be quite happy with.

..WorldCom, Enron, take your pick. While there is no proof yet of accounting issues, the existence of a large portion of their investor base, who do not respond to traditional "warning metrics" is letting the stock bubble up and up and up.

Strange. This usually doesn't go on forever if you get my drift.

It's absurd to compare Tesla to WorldCom and Enron. Those were frauds and wouldn't stand today's SEC acid tests. Short of having direct access to Tesla's accounting details, what proof do you as a Joe public want to know that they are doing legitimate business ? do you know how to read SEC reports ? you are repeating the theses of those Seeking Alpha shorts, nothing new there.

Tesla's business plan is clear as day. All the pieces are already on the table, what's left is execution. There may be hiccups along the way - everyone is aware of that fact. After all the company is less than 14 years old since inception. The first Model S is less than 5 years old but look at how it has changed the auto industry.

Go back 2 years, who else had EV or autonomous driving in their business plan ?

Tesla is certainly working like a startup - learning it the hard way but getting it done. Look at how quickly they responded to the fatal accident involving autopilot - software fix for the autopilot flaw, autonomous HW2 in all new cars, new software for HW2, ... all within the last 6 months. These changes were not only to fix the AP flaw but to enable a new generation of HW and SW for the inevitable fully autonomous capability.

Compare this speed to traditional automakers and you see how archaic those automakers are. Remember GM's ignition switch problem that caused more 100 deaths ? how many years did it take for GM to acknowledge there was a problem ? How about Diesel-gate ? why did it take so long the undo the software cheat ?

For a quick reality check, look at Tesla's Over-the-Air (OTA) software update. Tesla has done this many years now, and the technology is available everywhere but only recently that other automakers begin to mention it in their plan. With their large budgets, those automakers can do this easily but their business model prevents them from doing it - to the benefit of the dealers and at the expense of the consumers.

Henry - thanks for your thoughtful response - although by your response you validate my post. Every coin has two sides - I am looking at one side (as seasoned financial professional) and others may see something different - either by (1) overlooking things (or patterns!) that I (or others like me) may think they have identified or (2) identifying elements that were missed by others.

You highlight Tesla's "OTA" over the air SW updates. There is nothing proprietary about "beaming" software to a device (phone, vehicle, whatever). However, the company needs to pay for all the bandwidth to get the data to the device. This is expensive (though certainly less expensive for Tesla with comparatively few vehicles on the road versus traditional manufacturers with millions of vehicles on the road. The other element here is that IMO, Tesla pushes out code fast and seems to rely on OTA updates to "fix" any "bugs", which will necessitate the OTA updates - else a safety problem arises. Tesla's customers are in effect beta testers (ahem, for autopilot?). Traidtional manufacturers seem to be much, much more conservative with operating sytem items in their vehicles - only updating when the vehicle is brought in for service.

Tesla's financial reporting also will not win any awards for clarity, though it may comply with the minimum requirements (or it may not, who knows until an SEC action is announced) absent any press releases to the contrary.

Tesla has given us all a fun ride, though it seems that some optimistic investors (like Enron and WorldCom up until the music stopped)have given Tesla somewhat of a free ride or at least some latitude to spend their money outside of traditional automotive company valuations.

Two sides - same coin.

mre30: glad to carry a meaningful conversation without the usual insults/distraction.

The argument for other automakers not supporting OTA is very weak. The cost for bandwidth is negligible using 3G network (already obsolete for cell phone use), and OTA updates are mostly done via home wifi. Tesla was built with this in its blueprint whereas other automakers are still reluctant to catch up. What happens when cars don't need to go to dealers for a software update ? Simple - it means lost revenue for the dealers, customer's convenience be damned.

There have been a lot of debate on autopilot flaws so I won't go there, but with the new suite of SW and HW with radar and improved sensors, the AP system is much safer (Autospies recently posted a video showing the Model X anticipating an accident and stopping well ahead). Within 6 months of the fatal accident involving AP, new Tesla customers already have a much more advanced system. How long would you guess for traditional automakers to make such change ?

As for financial reporting, what do you expect more from Tesla in term of clarity ? Companies are not obligated to report financials of individual business sectors. In fact they prefer not to so as to keep their operations confidential from competitor - this is perfectly acceptable. If they don't violate SEC regulations, why assume they have something to hide ?

As you stated "I am looking at one side (as seasoned financial professional) and others may see something different - either by (1) overlooking things (or patterns!) that I (or others like me) may think they have identified or (2) identifying elements that were missed by others. " - so what have you found ? can you share it here ? or maybe you can blow the whistle to the SEC on your finding ?

BTW, using the 2 sides of the coin implies randomness. There is no randomness in Tesla business plan. It was published by Musk personally, known as the Master Plan, and has been well documented and scrutinized over the years. As I said, all the pieces are in place - the important step now is execution on the Model 3 roll out. We'll find out soon enough, and I like its chances.

HenryN wrote: "It's absurd to compare Tesla to WorldCom and Enron. Those were frauds and wouldn't stand today's SEC acid tests..."

Did you miss the article about the SEC complaining that Tesla (and others) are not adhering to GAAP (Generally Accepted Accounting Practices)? An enterprise only "becomes" a fraud, a sham, when the public comes to *believe* they are. They can operate for years with the appearance of a successful, thriving company, while stock buyers bid up their shares. Then one day, the house of cards collapses. Even so, there will still be believers! Blackberry isn't yet a penny stock. From their mid-2008 peak of $144.56, they slid to $5.88 (a 96% decline), and have since been bid up to today's $7.12 (up 21%) by believers.

It's a weird world out there. Believers will believe.

^^^
"Practices" -> "Principles" (re GAAP)