Tesla is having its best week since October, but investor says bear case is still strong

VIDEO1:5401:54The bear case for Tesla remains strong, market watcher saysTrading NationTesla is back in gear.
The stock has rallied 12% this week in its best weekly stretch since October. Since a low Monday morning, it has revved 17% higher.
“For the bulls on Tesla you're really happy that the month of May is over and June has come. What a rally in the stock,” John Petrides, managing director and portfolio manager at Point View Wealth Management, said Thursday on CNBC's “Trading Nation. ”
Now Tesla faces two potential paths, he said.
“I really do think the stock is at a crossroads here. Tesla is a very polarizing name. You either have a strong conviction on the upside or you have a strong conviction on the downside – there's no in between,” Petrides said.
While bulls have rushed in this week, Tesla still generates a lot of skepticism on Wall Street. The stock is one of the most heavily shorted at 31.4% of its float. High short interest levels indicate a large number of investors are making a bet the shares will move lower.
Petrides said both the bulls and the bears have their talking points, but he leans toward one of those arguments.
“If you're buying here today, you're buying it for the long term. You think that Tesla will continue to dominate the electronic market five years from now. Or you think they're going to drown in their own debt and burn through cash and the stock is going to go consistently lower,” he said. “We're on the case of the bear side.”
Tesla's high debt load has caused concern among Wall Street firms and investors. Morgan Stanley recently cited Tesla's debt load and access to capital alongside weaker demand as reasons for concern over its stock price. The firm said its worst-case scenario would take the stock down to $10.
“We think that valuation is just not attractive for this capital-intensive business where more competition has come into the market,” added Petrides.
Tesla's price-earnings ratio, a measure of valuation, still trades as high as 121 times forward earnings even after the stock's steep decline this year. The Invesco QQQ ETF, which tracks the Nasdaq 100, trades at just 20 times forward earnings.
Even with this week's rally, Tesla shares remain on track for their worst annual performance ever. The stock has fallen 37% since the beginning of the year.

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Elon Musk at Tesla shareholder meeting: ‘It won’t be long before we have a 400-mile range car’

VIDEO8:3508:35Tesla shares could see Netflix-like recovery: Consumer trend expertFast MoneyTesla CEO Elon Musk spoke at the company's annual shareholder meeting in Mountain View, California on Tuesday, telling investors, “It won't be long before we have a 400 mile range car.”
He also said that sometime next year, Tesla drivers will be able to use self-driving features in their vehicles without intervention.
Musk said, “Every car made since October 2016 is capable for full autonomy with replacement of the computer alone.” He also added, “We'll still need regulatory approval but the capability will be there. This massively increases the value of the car. In fact, I think it's basically financially insane to buy anything except an electric car that is upgradable to autonomy.”
Tesla CEO Elon Musk speaks during the unveiling of the new Tesla Model Y in Hawthorne, California on March 14, 2019.Frederic J. Brown | AFP | Getty Images(It would be unprecedented for a car to appreciate in value near-term. It is rare when cars become a collectors' choice, and gain value over a longer time.)
Tesla CTO and co-founder JB Straubel, who has rarely been seen in public in recent days, joined Musk on stage at the meeting to thank teams that built the company's battery tech and massive US battery plant, the Gigafactory. Tesla jointly owns and operates that factory with Panasonic, its primary supplier of cells for its vehicle batteries today.
Musk and Straubel also showed a picture of a green field in Europe, joking that this would one day be their Gigafactory in Europe. The company aims to establish a car factory on each continent, Musk said. By the end of this year, they intend to determine and announce the location for another battery-and-car plant in Europe.
The execs were also joined by Drew Baglino, who has been with Tesla for 14 years and leads battery, power train and solar roof projects.
The electric vehicle and renewable energy company is on the hook to produce and deliver 90,000 to 100,000 cars to customers by the end of this quarter, per its earlier guidance, which has been reiterated by execs, including Musk and CFO Zach Kirkhorn, throughout the period.
Tesla is also trying to make and sell more cars with fewer employees in the US, having laid off hundreds in cost-cutting measures earlier this year. At the same time, it is expanding operations internationally, with a new battery plant and car assembly, known as Gigafactory 3, under way in Shanghai.
Musk also told shareholders that they should expect an unveiling of the Tesla pickup truck towards the end of the summer of 2019, and production of its larger electric Semi truck by the end of 2020.
Outside the venue where the shareholder meeting took place, the Computer History Museum in Mountain View, California, Tesla showed off prototypes of its forthcoming Roadster, Semi and Model Y, prompting fans and shareholders to post snapshots on social networks.
The annual meeting marks the first for Tesla since Oracle founder Larry Ellison and Walgreens Boots Alliance executive Kathleen Wilson-Thompson joined the company's board of directors late last year. (Ellison was in attendance on Tuesday.)
When asked about Tesla's financial prospects for 2019, Musk said, “Profitability is always challenging if you're a fast-growing company.” He said that Tesla is on-target to grow its entire “fleet” by 60% to 80% this year, and said, “It's hard to be profitable with that level of growth.” He said the company could be cash-flow positive while growing at that rate.
Tesla stock has been edging higher in recent days after favorable analyst reports and electric vehicle sales forecasts from the likes of Morgan Stanley and IHS Markit, respectively. Tesla shares closed on Tuesday at $217.10, down about 36% since this time last year when they were trading near $342.
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Adam Jonas’s Thoughts on Tesla: Facts or Fantasies?

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Published on May 29th, 2019 |

by Peter Forman (aka Papafox)

Adam Jonas’s Thoughts on Tesla: Facts or Fantasies?

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May 29th, 2019 by Peter Forman (aka Papafox)

The trading week of May 20–24 was not kind to Tesla. The stock dropped more than 20 points, which translates into a loss of some $3.5 billion in market capitalization. The primary reason for the plunge was investor reactions to a full-court press of negative comments from analysts and the media.

A central figure in the week’s vortex of negativity was Morgan Stanley analyst Adam Jonas. Not only had he posted recent reductions in Tesla stock’s price targets, but he went so far as to host an investor’s conference call, aimed at institutional investors, to share his negative impressions of Tesla with those companies holding the lion’s share of the company’s stock (TSLA).

How well did Jonas portray Tesla’s prospects? We have a unique opportunity to judge his presentation because just one day later, on May 23, Elon Musk issued an email to employees in which he shared critical information about second quarter vehicle production and deliveries. Armed with actual data, let’s look at the claims in Jonas’s investor call and judge his points on a scale of Hit or Miss.

Adam Jonas position

Reality Check

Hit or Miss?

Tesla is burning money.

Tesla had operating cash flow of $1.4 billion in Q3 2018 and $1.2 billion in Q4 2018. Q1 of 2019 had substantial negative cash flow, but Q2 2018 deliveries in the vicinity of Q4 2018’s would produce positive cash flows again, and expectations are that Q3 2019 will be better than Q2. One quarter does not a money burner make, especially when Musk warned early that logistics of beginning international deliveries in Q1 would lead to an additional 10,000 vehicles in transit during the quarter.

Miss

Supply of Tesla vehicles is greater than demand

Tesla’s production of Model 3 in Q1 2019 was constrained by the availability of Panasonic produced cells. Message boards indicate brisk demand for all Tesla vehicles at the moment. With M3 production at 900/day, trying to push 1000/day, production is the bottleneck in Q2, not demand. Q2 increase in production is possible because of shift to standard range M3s, which use fewer cells. No standard range M3s were shipping to Europe or China in Q1. Musk’s email explained how 50,000 new orders had come in already during the first 7 weeks of Q2, suggesting continued growth of organic demand.

Miss

Nobody cares about Model Y

In Q1, Model 3 was the highest grossing vehicle of any type in California. As Jonas points out, the sedan market is dying in America. It’s being replaced with the CUV and SUV market, which is why Elon Musk predicts Model Y will outsell S,X, and 3 combined. If you review the Model Y presentation, you’ll see how Musk downplayed the vehicle (likely to avoid distracting from Model 3 orders during the long wait for Model Y). Moreover, the Tesla Semi is a commercial vehicle with extremely attractive economics and it, too, begins production in in 2020.

Miss by a mile

China is a big concern

Model 3 begins production in China late this year, and the vehicle will be tariff-free to Chinese customers, regardless of trade war status. Chinese automotive expert Michael Dunne appeared on the May 26 edition of Autoline This Week and explained how well positioned Tesla is for success in China with its factory, huge support from Shanghai’s government, and the Chinese being big fans of Tesla and Elon Musk. Meanwhile, teardown expert Sandy Munro says the China-built Model 3 SR should generate 25% gross margins. Current orders in China for long-range Model 3s with tariffs attached does not provide a good basis for judging demand for the more affordable Model 3s soon to be built in the country.

Miss

Tesla is no longer a growth story

To solve the battery cell bottleneck, installation of three fast cell production lines at GF1 and transition to local labor will help in the short run. In long run, changing to a dry electrode battery technology pioneered by recently-acquired Maxwell Technologies will allow many times the production within the existing factory space. These cheaper and longer-lasting batteries will allow Model Y and Semi to move forward with adequate cell availability and cost reductions of about 20%. The exciting lineup of future Tesla models, along with GF3 coming on line, will allow substantial growth in 2020. Musk’s email suggests that Tesla has a chance in Q2 to exceed the 90,700 vehicles delivered in Q4 2018 if production allows.

Miss by a country mile

The problem with the Jonas report on Tesla was not one or two isolated points, but rather a pattern of over-the-top negativity that completely distorts the company’s attractiveness as an investment.

The publication of these points of negativity brought up by Jonas damaged Tesla’s stock price because the public expects analysts from a firm with the stature of Morgan Stanley to be capable of somewhat accurately analyzing a company that falls within their specialty. Moreover, Jonas went after Tesla’s biggest investors with this presentation, the people who could most damage Tesla’s stock price. He called Tesla “a distressed-credit story and restructuring story,” thus sounding his alarm as loudly as possible.

The fallout for Tesla was greater than what one would expect from just a bad analyst’s opinion, however. In a note released by Jonas earlier in the week, he dropped his bear-case price target for Tesla from $97 to a mere $10 (yet didn’t change the overall price target). This amount was so far removed from reality that even Musk’s nemesis Jim Cramer called the number “really insane.” Nonetheless, that $10 target received enormous traction as reporters of every type picked up and repeated the $10 price target story. Predictably, a copycat “really insane” worst-case target soon followed, this time from Citigroup, as it gave a $36 target which was likewise picked up by reporters. Such ridiculously low targets turned out to be a truly effective form of FUD, however, and those of us who share Tesla stock information with friends and family members were deluged with questions from worried stockholders ready to sell. If the goal was to drive down the stock price, it worked.

The calamity of a seriously inaccurate appraisal of a company’s prospects reached its zenith as reporters chose to write stories about Jonas’s imaginings rather than base stories upon the far less sensational words of Tesla’s CEO, who had just indicated to employees that Q2 looked promising. The week concluded with the Associated Press sending out a story which quoted Senior Analyst Jessica Caldwell of Edmunds as saying, “There doesn’t appear to be anything in the (product) pipeline that is going to save them.” Each retelling of the story gets worse as the ethics of click reporting continue to erode the few remaining hints of journalistic integrity still out there.

To Adam Jonas, I pose this question: Knowing what you learned from the Musk email to employees the day after your investor’s call, are you going to publicly share a significantly revised view of Tesla within a week?

A lack of action would suggest only the worst of motivations for producing such an inaccurate assessment of Tesla. Mr. Jonas, do the right thing.

About the Author

Peter Forman (aka Papafox) Peter is a writer and innovator who began buying Tesla’s stock at $28 a share and has never looked back. This former airline pilot and college professor has a passion for applying new technologies to education. More recently, he has focused on understanding the trajectory of today’s clean energy revolution. He drives a Tesla and powers 100% of his house and vehicle’s energy needs through rooftop solar panels.

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