Wall Street is clueless on Tesla? [TSLA]?

June 3, 2019 by Maarten Vinkhuyzen

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The most important tweet of 2018 was not the so-called infamous "secured financing". That was the tweet of April 13, 2018, according to which Tesla would be profitable in Q3 and Q4, and that he would not need to raise funds in 2018.

But that did not go in the direction of the analysts' views. It was ignored, ridiculed and considered a bad attempt to swell stocks. All analysts have forgotten that Elon Musk's Twitter account, Tesla's CEO, is an official Tesla publishing channel, which gives this tweet the status of an official press release aimed at the financial community.

The Economist used to be boring, but smart with a nasty and dry mind. Now, it's boring (sigh). Tesla will be profitable and cash flow + in Q3 and Q4, so no need to raise funds.

– Elon Musk (@elonmusk) April 13, 2018

At the first quarter earnings conference call that took place on May 2, 2018, a number of analysts stopped asking questions about the funds that Tesla needed – to their opinion. It has been repeatedly suggested that Tesla must absolutely collect more money, although Musk has repeatedly said that this is not the case. An analyst who insists that Elon divulges the amount of funds that Tesla was collecting, despite this earlier denial of the need to raise funds, found that. It was very embarrassing, an analyst basically telling the CEO to stop lying and tell everyone l & # 39; analyst wanted to hear.

Lesson for analysts: CEOs and CFOs try not to lie to the financial press in their official statements, press releases, quarterly financial reports and press conferences. They can go to jail for that. And if you, a senior journalist or analyst, have strong suspicion, supported by evidence indicating that one of these two lie, call the SEC. The SEC likes to know it as long as it is Tesla.

It should be noted here that there has been no slippage in the wording. Elon has repeatedly said that Tesla would not collect money by 2018 and would show profits in Q3 and Q4.

A year later, it is not much better. The current confusion over important information is this time around demand, not production capacity and profits. While the demand for all-electric vehicles outside the US is growing at a rate that automakers can not match, US analysts are once again demonstrating that they do not know the difference between sales and deliveries, nor the operation. of the automotive market outside the United States. Or they claim not to know.

They tell unfounded stories about Tesla, embarrassing themselves by showing their lack of knowledge and ruining their credibility with those who can reunite 2 + 2.

Last week, a Tesla store in Vancouver, BC, announced that it sold 800 cars in a week. They will probably be delivered in the third quarter. These daring analysts will most likely report an increase in demand in the third quarter and an "alarming drop" in the fourth quarter, while all that is likely to happen is a rush in the second quarter that turns latent demand into real sales because of a local incentive to run the risk of. This will create what looks like a wave of demand, or a roller coaster with a sudden drop at one point, instead of steady-state demand. Is the demand really going down a cliff? Or is there just going to be an unbalanced expression of constant demand?

It's not really difficult when you have the facts in hand.

So here's a short tutorial for analysts:

There are two types of sale.

1. Commercial sale – the customer who decides to buy and sign the sales contract. This is important for assessing a seller's demand and premiums.
2. Delivery and final payment. This is important for the accounting department and for allocating the profit at the right time.

Here are some examples of problems affecting both types of sales:

• Plants undergoing modernization have temporarily less production, less production involves fewer deliveries. (sale of type 2)
• Ships arriving (or not) in overseas export markets determine the logistic flow and the peaks / declines in deliveries. (sale of type 2)
• Incentives being modified can lead to spikes and declines in customer decisions to (not) purchase a given car. (sales of type 1)
• Delivery date incentives can help deliver on time. (sale of type 2)
• Advertising campaigns and media attention can increase the number of customers who decide to buy. (sales of type 1)
• Seasonality due to the number plate series. (sale of type 2)
• Spikes after the payment of bonuses. (sales of type 1)

In the United States, Type 1 and Type 2 sales are mostly on the same day. Knowing the number of Type 2 sales is a good indicator of the demand and success of an advertising campaign. In the rest of the world, especially in Europe, it usually takes a few weeks to a few months between type 1 sales and type 2 sales. This is also true for domestically produced vehicles. Most dealers do not have unsold new cars on their premises. They are considered a waste of money and a sign of bad sale.

For various reasons, only Type 2 sales are reported to the financial press and the general public. Type 1 sales are often shared with government trade associations and statistical offices. They are not shared with the competition and the underdogs. Car journalists and financial analysts in Europe do not pay attention to one-month figures. This is only when a model takes shape over several months that it's time to draw conclusions. Even when there is a probable cause and effect, as during the arrest of Ghosn in Japan, the conclusions are very carefully formulated (in this case, most of the time after confirmation by Nissan).

In data science, you learn that pure data does not make sense. The process of making sense of the data turns them into information. To make sense of the data, you need to know the rules that apply to the data. If you do not know the rules and therefore apply an incorrect set of rules, you get gibberish. Not recognizing gibberish is a mistake as serious as applying bad rules initially.

Tesla's information having a demand problem is gibberish, but is not recognized as such.

Recently, we had two other examples of Wall Street not transforming data into factual and correct information. Both were "leaked" by Elon's internal emails to Tesla staff. The first hyperbole contained relates to the burn rate at which the newly acquired capital could be exposed. The second involved many orders for cars.

Many articles address the question of why these highly paid analysts lack basic reading comprehension to interpret e-mail in the same way. The best is "Some Thoughts on Elon Musk's Emails to Employees – and the Media + The Wall Street Answer". There is no reason for me to repeat the content of this article – just read it if you do not do it. Elon's answer to the article was: "Yeah."

The SEC is very critical about disclosing important information that may not be 100% accurate. Elon Musk sometimes uses a big brush to paint the future that he expects. Elon is not "scripted". Other CEOs can give word for word, years later, the same generic answer to a question they have not received for years. Elon will give two different answers when the same question is asked in the same conversation. He answers in a human way to the question in the moment and go out of a memorized script obsessively checked by the attorneys.

The SEC is right to ask for more clarification in communications, but the SEC shares the same handicap as many Wall Street – he is apparently unable to recognize important information.

The tweet of April 13 of last year was not recognized for what it was, a very important publication on the problems of production of model 3 being resolved, as well as implications for the productivity and profitability of Tesla the rest of the year.

It was thought that the first letter of this month contained the assumption that Tesla would run out of money in 10 months. That was not the case, and if we thought about it for a few seconds, the numbers would not add up. When you have a $ 4 billion cash and you burn $ 2 billion in 10 months, you are not running out of money, you still have $ 2 billion in cash . In addition, Elon did not make a prediction or forecast – it simply showed that $ 2 billion did not mean they had no worries in the world. There was no important information in this letter. It was a normal internal communication with employees, as every company does regularly – to be economical, not to waste money.

The second letter contained important information – on order taking, production volume, and production goals – exactly the kind of information that Wall Street always asks for and does not receive, because they regularly misinterpret it, as happened this time.

Finally, there is complete misunderstanding of the difference between orders, logistics, deliveries and demand. The Wall Street analysts we are supposed to trust produce wild fairy tales on which many conspiracy sites would be jealous, joining a cult of "truthful seekers" who, until recently, was really present only on #TSLAQ.

Note the exceptions in the financial sector. Bank of America has stated that Tesla's current share price was the result of short seller manipulations, not fundamentals. For Oppenheimer and ARK Invest, the expected disorder of the first quarter was not a reason to revise their analyzes and their long-term projections. Congratulations to these three people, who used their brains and their facts instead of reproducing the reverberant sound in the soundboard of Wall Street analysts, experts and $ TSLAQ.

The effect of the failures of the other is a loss of billions of dollars from real investors, people that the SEC was created to protect. And then, there may be billions of dollars in profits for illegal short sellers and manipulators, one of the disruptive market groups that the SEC was created to sue. The success of these short sellers is made possible by the crowd of Wall Street analysts, experts and traditional financial journalists who help and encourage them. It's their myopia and room culture that misleads investors really interested in how the business is doing.

To recap, here are four examples of Wall Street that completely miss the meaning of the data it receives:

1. Rumors induced by FUD on falling demand, combined with misinterpreted figures of European sales.
2. Ignore the tweet of April 13th on profitability and the next shareholder letter and his verbal explanations.
3. See alarming financial forecasts where there is only motivational hyperbole in a normal letter to employees, a letter in which there is no forecast.
4. Conclusion of lack of demand when there is in fact a message of high order and possible record deliveries.

No matter how accurate Tesla's communications are when Wall Street is unable to understand what's going on, what's important and what's not important.

OK, accurate information is important for we, press briefings on specialized electric vehicles and renewable energies, compulsive Tesla enthusiasts and Tesla investors. We need information. So, I have a request.

At the end of the quarter, two figures are published: production figures and deliveries. The production tells us the performance of the factories. Deliveries are financial results, but a little meaningless without the average selling price and the gross margin.

I have a request for Tesla: can you replace the delivery number with the net order number. Next, the first quarterly report covers both production and sales. This would then be followed 3-4 weeks later by the normal report on the financial results achieved through these performances.

Wall Street will not understand the numbers, or pretend to not know it, but hey, it's not new.

Keywords: Tesla, Tesla sale, Tesla stock