****Here are the key points from the Q3 report and the revaluation with the addition of ESG factors:
1. Increase to 22.8% Gross Margin(from 18.9%) and an Operating margin of 4.1%(from -2.6%). Argument: Improvement in their production line, Tesla's becoming more efficient at producing vehicles. (Ref #2)
2. Large improvement in cash flows, mostly because of cost cutting(15% "magical" drop in expenses); at the same time slightly lower revenue. More importantly their investments are having faster payoffs than expected (China expansion and model Y development, both ahead of schedule).
3. Tesla is becoming more diversified as there are more indications that they're successfully developing their energy storage projects. Revenue from project unrelated to auto sales grew from 368(Q2) to 402 mil(Q3), and will continue to expand in 2020.(Ref #3)
4. Obviously, since cash flows are better, so is their EBITDA(Q2-371 mil, Q3-876 mil), this is where their good EPS figure came from. Furthermore, there are indications of deferred revenue that will be realized in the following quarters."We also expect to
gradually release nearly $500M of accumulated deferred revenue tied to Autopilot and Full Self Driving features."
5. US EV market seems to be saturated, but there could be an opportunity for more demand to kick in as the current ESG investing trends continue based on the current DIM(Green new deal) momentum. Tesla's European expansion will take time and won't be as profitable as the Asian expansion. Chinese expansion opportunity without a doubt will have a large long-term payoff.(Ref #4)
***Most importantly: The rest of the market could feed off the Tesla surprise. No doubt, it's been the best and most surprise for the earning season so far. In times of rising recession fears, Tesla doing well as the market leader in a growing EV automarket, definitely is a major benefactor to the sentiment overall.***
Have to say that I've learn to, not be dependant on wall street analysts when trading highly volatile growth stocks(extension from my previous post). But then again, going off of management's' guidance, they will always have the incentive to manipulate the numbers. It can be said that their bad start of 2019, was an existential threat to Tesla , so Musk and the team got to work. There are still some questions about profitability, but the tricky part is that Tesla's investors are motivated because of ESG factors, not by profitability. Profitability matters less to these type of investors, since the markup in valuation from having a high ESG* score, could improve long-term returns in such investments as Tesla . At these low rates, even if profitability is low, Tesla could keep financing their investments and keep growing with good fundamentals. Additionally, taking their positive ESG score into consideration- the long term looks . I think that more and more portfolio managers will sacrifice potentially higher sharpe ratios in order to acquire stocks with higher ESG scores(some trade-off), as investor preferences continue to change and become more and more adaptive to the increasing popular ESG investing trends. (Ref #1, great paper on ESG's impact on investing.
This is the update on Tesla post-earnings. Learned my lesson(my bad), short interest was just too damn high to ignore it pre-earnings.
*ESG stands for Environmental, Social, Governance.
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References and Disclosure:
1. https://papers.ssrn.com/sol3/papers.cfm?... ( ESG Investing paper, released about a week ago)
2. https://ir.tesla.com/static-files/47313d... (Q3 report)
3. https://hypercharts.co/tsla (All the financials)
4. https://www.youtube.com/watch?v=zMcnhirm... (Good video on and conference call)
Full Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content for private or corporate purposes- contact me through any of my social media channels.
Just a short update. Trying out a log chart on Tesla, seems that the pitchfork, ichimoku cloud and MA's are fitting better.
1. Seems that target 1 (344) could be reached sooner than expected.
2. By the end of the year, considering if there are no bad news from Tesla and their battery probe goes through without any issues, Tesla could aim for target 2 (365) at the top of the range.
A bit sooner than what I expected, but it's just a matter of trade news.
Price reacting accordingly. The targeted zone (344-365) was reached, now expecting Tesla to trade in a horizontal range below 353 for a few weeks.
Short interest getting quite low. It could perhaps go even lower, but with the overall macro environment, I'd rather choose to stay contrarian here.
Expecting a horizontal price action for some time, that will help determine the trend for $TSLA in the next 2 quarters.
New updated momentum channel for $TSLA.
Momentum strategy unfolding.
Perhaps in 2020. For now, let's see how far down short interest in $TSLA will go. Getting a bit too low for my long contrarian confidence. All the good stuff have been priced in, there should be some reversal or at last horizontal movement before going further up!