Here is The best way to Play Tesla When Nice Is not Excellent Sufficient

Electric vehicle manufacturer Tesla (TSLA) reported the firm’s third quarter numbers for both production and deliveries on Sunday. The numbers were very good. In fact the firm set a new third quarter record for deliveries. The numbers just were not what Wall Street was looking for. The stock has taken an early Monday morning hit.

For the third quarter, Tesla produced 19,935 Models S and X, while delivering 18,672 of them. Tesla produced 365,923 Models 3 and Y, while delivering 325,158 of them. That makes for total production of 365,923 vehicles and deliveries (which some interpret as a proxy for sales) of 343,830.

Consensus had been for deliveries of almost 358K according to Bloomberg News and for almost 365K according to FactSet. I had heard whisper numbers as high as 370K myself.

In the press release, Tesla does point out that delivery volumes are historically skewed toward the end of each quarter due to the regional batch building of vehicles. This quarter, Tesla transitioned to a more even regional mix of manufacturing each week, which led to an increase in vehicles still in transit at quarter’s end.

Readers will recall that production was suspended at the Shanghai facility in July in order for the firm to make equipment upgrades. Tesla also reduced headcount in August and brought people back to the office who were working remotely. A number of those never returned.


Tesla also announced in the press release that the firm’s third quarter earnings will be released after the closing bell on October 19th (now having 1987 flashbacks). Consensus view for the period is for adjusted EPS of $1.05 within a range spanning from $0.77 to $1.23. This would be on revenue of $22.6B. The range of expectations there runs from $18.4B to $25.6B. The year ago comps are EPS of $0.62 on revenue of $13.76B.

Precisely on consensus the quarter would be good for earnings growth of 69% on revenue growth of 64%.

Wall Street

Interestingly, JP Morgan’s Ryan Brinkman who is rated at one star (out of five) by TipRanks, maintained his “sell” rating on Tesla and his $153 target price in response to the miss on deliveries. Brinkman wrote, “We remain wary on valuation and continue to see large downside to our price target, including the potential for multiple compression amidst rising competition and less distinction vs. traditional automakers over time.”

On the other side of the token, Truist Securities’ William Stein, who is rated at five stars by TipRanks, reiterated his “buy” rating while increasing his target price from $333 to $348.

Four star analyst Dan Ives of Wedbush, who also views TSLA as a “buy” and has a target price of $360 on the stock, I think summed it up for the bulls… “We believe the unit set-up into 4Q is very robust and could approach massive numbers that are in the 475K+ range. In a nutshell, this quarter was nothing to write home about and Wall Street will be disappointed by the softer delivery number in 3Q. That said, we view this more of a logistical speed bump rather than the start of a softer delivery trajectory into 4Q/2023 and remain bullish on the Tesla story.”

My Thoughts

I am long the stock, so my bias is in line with what Ives has said. I am adding to that long position on Monday. So, now you know where I stand before proceeding.

Coming out of the second quarter, Tesla ran with a current ratio of 1.43, and a quick ratio of 1.06 after accounting for inventories. Both ratios are healthy. The firm does not pad the balance sheet with “goodwill” or other intangible assets. At that time, long-term debt totaled $2.095B, while the firm’s net cash position was $18.915B. Regular readers know how much I like a strong balance sheet. Tesla has a very strong balance sheet.

The firm ended the second quarter with a tangible book value of $11.51 per share and that quarter was Tesla’s ninth consecutive order posting positive cash flow. The firm is really, very fundamentally sound. In my opinion, the only problem a fundamentals minded investor could have with the stock is as the JP Morgan analyst said… in valuation. The stock, even accounting for this Monday morning discount, still trades at 61 times forward looking earnings.

This makes Tesla for me, more of a trade than an investment.

The series of lower highs since last November and the series of higher lows since May imply the coming of an explosive move in TSLA.

It is somewhat technically important that the 61.8% Fibonacci retracement level ($245) of the May through that triple top at $310 does hold. If it does, I will have a strong feeling that I am on the right side of the ball in this name.

My play, unless I am forced by a serious break of this level, is to play the name into those earnings in two and a half weeks. My target would be the intersection of the 50 day and 200 day SMAs (around $290), but I am likely out of the name after earnings either way.

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