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TSLA Trouble – Big Risks for Tesla Stock After Sales Miss

tesla stock TSLAInvestors in Tesla Motors (TSLA) have been happy to suspend disbelief in the company during the past several months.

Despite the practical constraints of production bottlenecks for the Tesla Model S, despite the forward price-to-earnings ratio of more than 100 for TSLA, and despite the talk of a bubble there was a huge belief in the narrative and the momentum behind Tesla stock.

But after Tesla earnings for Q3 shook confidence in this momentum stock, TSLA shares hit the skids in after-hours trading … and if the breakdown continues, we have only seen the first hints of how bad this crash could become.

Tesla Earnings Strong, But Not Strong Enough

At first glance, Tesla earnings look great. Non-GAAP revenue was $602.6 million, up 9% from the previous quarter, and strong adjusted earnings of 13 cents a share, topping profit forecasts.

The details reveal some sketchiness, however, since TSLA prefers an accounting system that books the entire life of a lease up front … and unfortunately, that is not allowed under generally accepted accounting principles.

Using GAAP standards, then, Tesla actually reported a net loss of $38.5 million, or 32 cents per share.

Operating at a loss is never a good thing, but some Tesla stock investors might be willing to overlook this in pursuit of continued long-term success.

However, another disappointing detail in Tesla earnings was the fact that Model S deliveries fell short of expectations. TSLA delivered 5,500 electric cars in total, 1,000 of which went to Europe, but despite decent growth that was below expectations.

And of course there’s the declining zero-emission vehicle tax credits to bolster earnings as TSLA took in just $10 million vs. $51 million last quarter. This is natural as the Tesla Model S rolls into overseas markets and even U.S. states that do not have a ZEV credit system, but a drag on earnings nonetheless.

So on the whole, we got a Q3 that doesn’t wash with the do-no-wrong valuation for TSLA stock right now … and thus a double-digit selloff in the immediate aftermath of Tesla earnings.

What’s Next for TSLA?

Going forward, Tesla expects to deliver 6,000 vehicles in Q4 for a total of 21,500 Model S sedans this year. It’s crucial for Tesla to hit those numbers, or else this third-quarter earnings report could be seen as part of a long-term trend in production shortfalls, not just an anomaly.

But even if TSLA continues a track record of success, the big question is whether that success will be enough. Consider that the 5,500 Tesla electric cars delivered in Q3 topped Tesla’s internal forecasts of 5,000 vehicles … but it was shy of Wall Street’s more ambitious targets that are weighing on shares.

This expectations game is an unfortunate but stark reality for Tesla stock investors right now. And considering that Tesla CEO Elon Musk recently admitted that TSLA stock is overvalued, it’s crucial for investors to understand that internal goals set by Tesla are actually more important than playing the Wall Street game … even if that means some overly bullish traders get burned in the process.

The future is undoubtedly bright for Tesla Motors, as it began taking reservations in China for its Model S and expects to begin making deliveries in Asia right after the new year. Furthermore, Tesla remains iconic and an undisputed leader in electric vehicles with plans to roll out a more populist Model E midsize sedan at a lower price point.

But investors should start to admit that TSLA stock might be in an untenable position, with incredibly high expectations and the natural bottlenecks of expanding a capital-intensive business like vehicle manufacturing — not to mention fending off competition from the low-emission plug-in Prius from Toyota (TM), the Chevrolet Volt and Spark duo from General Motors (GM) and other up-and-coming electric cars looking to cash in now that Tesla has proven the EV market to be very viable.

Momentum stocks always end with a tremendous flame-out. Whether Tesla can avoid that crash and burn after the immediate earnings selloff is a fair question, but the reality is that investors who have been sitting on this fast-moving stock should get real about the bumpy road ahead.

One thing is clear, though … all those bearish traders sitting around waiting for the inevitable stumble and selloff in Tesla stock are mighty pleased with themselves.

More on Tesla earnings

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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Comments
  • Bob Waters

    There seems to be a lot of confusion and reporting going on here. Tesla’s leasing differs from a GAAP expectation in that Tesla receives the full amount of the lease upfront. This is one of Tesla’s advantage over a traditional auto manufacturer since they sell directly to the consumer. It makes Non-GAAP figures more accurate to true cash flow. Others have a reported a -13% decline in US sales as the reason for the drop in share price however Tesla is supply constrained and not even close to demand constrained meaning every car produced is directly to a costumer. US sales declined only to fulfill overseas orders that have been waiting 2 years. Total sales increased to 5500 and per car revenue jumped to over 100k dollars. Also, demand increased based on increased reservations which came up in the investor call. In addition, Elon Musk admitted that the biggest constraint is the supply of lithium batteries which shows evidence that the production line is not even up to full capacity due to battery shortages.

  • ricksanchez1

    Finally a buying opportunity for those of us who see Tesla doing great things in the future but felt 185 was too rich for our blood to jump. A 150 Tesla is looking good to jump

    • fucface jr

      More like a losing opportunity

  • thegreatcorntrollio

    1124am, down 21 bucks, watch musktrollio start buying more shares to offset the sell-off, this guy is a pimp and a hustler. The news about the battery factory is in conflict with the panasonic deal, means musktrollio sees value in parts and designs, never to be a car company but an ideas company….we can see how well that works for blackberry.

  • Great price

    The guy who wrote this article should be sued for trying to control the market with false information. The truth is tesla execeeded sales estimates and demand for the model s exceeds production

    • fucface jr

      get over it fanboi

  • Julian Cox

    What Tesla reported was hard validation of the effectiveness of its disruptive business model that results in cash flow positive hyper growth previously unheard of within the auto industry. Tesla has expanded into Europe and Asia and the bank account went UP $49 Million USD, not down $49 Million.
    GAAP loss due to lease accounting = vapourware, not a cash loss. (3.2% of 2016 vehicle sales is the total value of 2016 residual guarantee liabilities issued in 2013 most likely for an actual loss of zero when the time comes). Next stop: How to arrange sufficient cell supply to build 500,000 cars. A very nice problem to have. Problems in-between: None. Dilution or borrowing requirement in-between: None. If the company and its CEO has insider information that results in no need or desire to sell its shares at $194 what kind of moron sells at $150, $160, $170, $180 or $190???

    • fucface jr

      Is that you Elon? You only sold 5000 cars last quarter. Without government subsidies which won’t last forever you’re screwed and your company isn’t worth anywhere near it’s market value.

      • PunchingBag

        Is that you, Sarah Palin?

        • fucface jr

          Is that you Jonathon Martin?

      • Julian Cox

        one should always tread carefully in the vicinity of bullshit, but this bearshit does not smell right. Who are you trying to fool? I actually listened to the call: Rapid expansion into the auto industry on self generated cash – not begging shareholders to fund the next big idea or geographic expansion: Hypergrowth on Internally Generated Profits for the benefit of shareholders servicing an ever growing line of customers in the US and World Wide.

  • elon

    Nice smeap-piece, hack.

  • LinuxCloudCoder

    Tesla miss production target by a little bit… I bet Elon will make sure they exceed it next month. The company has plenty of money. They already know how to make the car. They just need to make more of it. I am sure they will come through.

    • Gary Vick

      no, Tesla actually exceeded there production and delivery goal (5000 car target, delivered 5500!). The people who were “disappointed” were hack analysts who set there own “expectation” at 5800… oooooh big disappointment there!

  • Meredith Spitalnik

    Sales Miss?!? Their target for the quarter was 5,000 units. Their actual was 5,500. Just because people somehow expected even more, doesn’t make it a miss…