Tesla Saves the Nasdaq, But Is the Stock Now a Short?
On Wednesday, the Nasdaq Composite returned its worst session in about six weeks. Then the closing bell rang.
After the bell Tesla (TSLA) reported its third quarter financial results. For that three-month period, Tesla posted adjusted earnings per share of $0.72 (GAAP EPS: $0.62) on revenue of $25.182 billion.
The earnings print beat Wall Street's expectations decisively, while the revenue print fell modestly short of consensus view. Adjustments were made for depreciation and amortization as well as stock-based compensation expense.
The margin expansion implied there, along with some positive commentary offered up by CEO Elon Musk during the conference call had the stock trading up more than 14% overnight.
Operations
Within that total revenue print, which was up 8% year over year, total automotive revenues rose 2% to $20.016 billion, energy generation and storage contributed $2.376 billion (+52%) and services were up 29% to $2.79 billion. It should be noted that of that automotive-generated revenue, $739 million came from the sale of regulatory credits, which was the second highest quarterly number for that metric ever for Tesla.
Total gross profit came to $4.997 billion, which was up 20% from the year-ago comp as GAAP gross margin widened to 19.8% from 17.9%. Automotive gross margin printed at 17.1%, easily beating the 15.1% that Wall Street was looking for.
Operating expenses were down 6% to $2.28 billion, leaving GAAP operating income at $2.717 billion (up 54%) on an operating margin of 10.8%, up from the year-ago comparison of 7.6%.
After accounting for interest, other income/expenses and taxes, net income attributable to shareholders printed at $2.167 billion (+17%). That works out to GAAP earnings per diluted share of $0.62. Adjusted, net income printed at $2.505 billion (+8%), which came to $0.72 per diluted share.
Deliveries
For the quarter, production of Models 3 and Y increased 6% to 443,668 vehicles, while delivering 439,975 (+5%) such vehicles. Production of other models increased 91% (the addition of Cybertruck) to 26,128 as deliveries of other models rose 43% to 22,915. Total deliveries were up 6% on production that increased 9%.
Tesla ended the quarter with 19 days of global vehicle inventory, up from 18 days for the prior quarter and up from 16 days for the similar year-ago quarter. The company also ended the quarter with 6,706 supercharger stations (+20%) and 62,421 supercharger connectors (+22%).
Outlook
On Volume: "Despite ongoing macroeconomic conditions, we expect to achieve slight growth in vehicle deliveries in 2024. Energy storage deployments are expected to more than double year-over-year in 2024."
On Profit: "We expect our hardware-related profits to be accompanied by an acceleration of AI, software and fleet-based profits."
On Product: "Plans for new vehicles, including more affordable models, remain on track for start of production in the first half of 2025. These vehicles will utilize aspects of the next generation platform as well as aspects of our current platforms and will be able to be produced on the same manufacturing lines as our current vehicle line-up."
During the call CEO Elon Musk said: "Regarding the vehicle business, we are still on-track to deliver more affordable models starting in the first half of 2025." Musk then added, "I think with our lower cost vehicles with the advent of autonomy something like a 20% to 30% (sales) growth next year is my best guess."
Fundamentals
For the quarter reported, Tesla generated operating cash flow of $6.255 billion. Out of that came capex spending of $3.513 billion, which left free cash flow of $2.742 billion. This was more than double the free cash flow for the previous quarter and more than triple the free cash flow for the year-ago comparison. The company does not return capital to shareholders.
Glancing at the balance sheet, Tesla ended the period with a cash position of $33.648 billion and inventories of $14.53 billion. This puts current assets at $56.379 billion. Current liabilities add up to $30.577 billion, including shorter-term debt of $2.291 billion, but also deferred revenue of $3.031 billion, which we know is not a true financial obligation.
All of this puts Tesla's current and quick ratios at 1.84 and 1.37, respectively. Both are more than acceptable, especially for an industrial, even if ordinary for a tech stock. Once adjusted for deferred revenue, these ratios improve to 2.05 and 1.52, in that order.
My Thoughts
On the surface, this is a very good report. Heck, the stock is up nicely, and so is the Nasdaq Composite.
However, there are some who I think of as very bright and knowledgeable that do not see it the way. Our own Doug Kass, in his Daily Diary on TheStreet Pro posed questions about Tesla's depreciation account and referred to Musk's claim about the firm's cost cutting as maybe "spurious." Kass came in short, the name and is shorting more shares this morning.
Mark B. Spiegel of Stanphyl Capital tweeted out that a substantial portion of Tesla's GAAP earnings came from sources that might be unsustainable such as the sale of emissions credits. Spiegel told followers to "get ready for a TERRIBLE Q4 margin-wise."
During Hegeye's Morning Call, analyst Jay Van Sciver called the report a low-quality beat, supported by discontinuous balance sheet items. He sees inventory as growing and calls the stock a short.
OK, so those are all not exactly my thoughts, but they do make me think and those of you making decisions this morning, maybe should be thinking too.
Readers will see in the chart above that TSLA failed to break out from a large cup with handle pattern with a $270 pivot when the stock price sagged in late September. The gap up Thursday morning fills the down gap created two weeks ago but leaves something to fill in its wake. Readers will also see a small rising wedge pattern that ran from August into September and created the ensuing selloff.
The shares failed to reach pivot at the top of that wedge and look to be failing to reach that apex this morning. This would make potential a series of lower highs.
TSLA has a reading for Relative Strength that is suddenly stronger, but a daily MACD (Moving Average Convergence Divergence) that even with Thursday's morning's improvement, still leaves all three of its components in negative territory. That is not bullish.
Do I Short Tesla This Morning?
I think above $250, I do, and maybe up to $270. A new high above pivot would be a breaking point for me. A target would be the 50-day simple moving average (SMA) at $229.
Do I short TSLA in size? No way. I have been burned more on shorts in TSLA than I have by any other name. This is trading fodder, not an investment decision for me.
At the time of publication, Guilfoyle had no positions in any securities mentioned.