Tesla Smashed Short-Sellers With Its Strong Q3 Results

Leading electric vehicles manufacturer Tesla Inc. (NASDAQ: TSLA) has reported strong financials for Q3 2019, notwithstanding with the expectations of many short sellers.

Following the release of its quarterly results, Tesla’s stock rose substantially on NASDAQ, increasing by over 17% during the day’s trade on 24 October. Tesla being the second-most shorted stock in the US, has slammed the expectations of many short sellers with its strong quarterly results.

Tesla September Quarter Figures

Despite reductions in the average selling price (ASP) of Model 3, the company’s gross margins have strengthened while its operating expenses are at the lowest level. The company returned to GAAP profitability in Q3 2019 and witnessed USD 383 million increase in its cash and cash equivalents balance to USD 5.3 billion.

Compared to the September quarter of 2018, the percentage of leased vehicles has increased by three times in Q3 2019 (refer below figure).

(Source: Company’s Report)

For the September quarter, the company earned USD 261 million GAAP operating income with 4.1% operating margin.

Why have investors shorted Tesla?

In the past, various investors have put forward their reasons for shorting Tesla’s stock. Tesla’s involvement in too many risky projects like spaceX, HyperLoop, Boring Company etc. has been a major reason why many investors have shorted this stock. Plus in the past, Tesla has been in the news for wrong reasons like Elon Musk’s twitter fights, faults in Car’s autopilot program, Car crashes etc.

A few months back, Tesla’s founder Elon Musk was accused of making misleading statements when he tweeted about taking the company Private resulting in an investigation by U.S. Securities and Exchange Commission (SEC). The controversial tweets by Elon brought lot of criticism on himself as well on Tesla.

Besides this, Tesla’s exposure to several risks, is one of the reasons why many investors are skeptical about this stock. Tesla in its last annual report has cited various risks that it has been facing. These risks include:

  • Risks related to the design, manufacture, launch, production, delivery and servicing ramp of new vehicles and other products which could harm Tesla’s brand, business, prospects, financial condition and operating results;
  • Delays in realizing its projected timelines and cost and volume targets for the production and ramp of Model 3, which could harm Tesla’s business, prospects, financial condition and operating result;
  • Tesla’s future growth and success is dependent upon consumers’ willingness to adopt electric vehicles, especially in the mass market demographic.

In the past one month, many investors reduced their short interest in Tesla due the expectations of stronger results, however, Tesla is still the second-most-shorted stock in the US equity market after Apple.

Tesla’s Major Highlights for September Quarter

  • Launched Smart Summon in the US, allowing car owners to summon their cars from up to 200 feet in a parking lot or driveway;
  • Registered one accident for every 4.34 million miles driven in which drivers had Autopilot engaged;
  • Released its latest and most significant vehicle software update which introduced streaming video (i.e., YouTube, Netflix, Hulu, video tutorials), Spotify, Caraoke (i.e., in-car karaoke), additional games, improved search and other functionalities;
  • Increased the EPA range of the Model 3 Standard Range Plus from 240 miles to 250 miles;
  • Launched Tesla Insurance for California customers, enabling many customers to reduce insurance costs by up to 20-30%;
  • Recently introduced Tesla Megapack a 3 MWh battery pack, preassembled at the Gigafactory as a single unit. 

The electric vehicles manufacturer is focused on expanding its manufacturing footprint in new regions, launching new products and continuing to improve the customer experience, while generating and using cash sustainably. 

Tesla Outlook

  • Vehicle Deliveries –Tesla expects its deliveries should increase sequentially and annually, with some expected fluctuations from seasonality;
  • Cash Flow – Going forward, the company is expecting positive quarterly free cash flow with possible temporary exceptions, particularly at the time of launch and ramp of new products;
  • Profitability– The company is expecting to earn Positive GAAP net income with possible temporary exceptions, particularly around the launch and ramp of new products;
  • Product– The company is ahead of schedule to produce Model Y and now expect to launch by summer 2020;
  • The company is positioned to accelerate its growth further through Gigafactory Shanghai, Model Y and also through increasing build rates on its existing production lines.

About Tesla

At a time where the whole world is transitioning towards clean and sustainable energy, Tesla is acting as torchbearer, improving the world with its advanced technology and products. Since 2003, the company has broken new barriers in developing high-performance automobile and has established itself as a leading provider of energy products that incorporates solar, storage, and grid services.

Being the world’s first vertically integrated sustainable energy company, the company’s primary operations involved manufacturing and selling of fully electric vehicles and energy generation and storage systems. Tesla’s vehicles offer range of services that significantly exceed those of any other commercially available electric vehicle.

Tesla’s electric vehicles include:

  • The Model S sedan – Fully electric, four-door, five-adult passenger sedan that offers compelling range and high performance;
  • The Model X sport utility vehicle (SUV) – Longest range all-electric production sport utility vehicle in the world that offers high performance features such as Tesla’s fully electric, all-wheel drive dual motor system and its Autopilot system;
  • The Model 3 sedan – Third generation electric vehicle, currently produced at high volumes at the Tesla Factory in Fremont, California and at Gigafactory.

At market close on 24 October 2019, Tesla’s stock was trading at a price of USD 299.68, up 17.67% on previous days’ close.

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