Tesla Collides with Reality

Articles From: Interactive Brokers
Website: Interactive Brokers

By:

Chief Strategist

Interactive Brokers

For better or worse, this is the third time this week that I’m writing about Tesla (TSLA).  It’s never my goal to be a TSLA commentator, let alone to pose as a company analyst, but considering that TSLA is perpetually the most active stock at our firm it is impossible to ignore.  It commands a huge mindshare among our customers.  Thus, when the stock plummets more than -11% — after already being down more than -15% in the short year-to-date thus far – I simply can’t ignore it.

We can quibble about the specifics, such as the slight EPS miss, the fact that 2023 revenues grew only 3% despite sharply higher vehicle sales, or that 2023 earnings were well below 2022’s, but the biggest problem is the bigger picture.  TSLA has always been about the future.  There was a vision that electric cars would command a leading place in the auto industry, and that eventually the company’s lead would result in exponential earnings growth.  Beyond that, there have been hopes that the company could bring artificial intelligence to real world products like self-driving vehicles and robo-taxis.  There has always been an element of futurism embedded in TSLA’s corporate DNA, even as we saw the exponential earnings growth come to fruition in 2020-2022.

That is why it is particularly distressing that the company, or Elon Musk, specifically, was either unable or unwilling to offer any specifics about TSLA’s near future.  Sure, there were big-picture promises about new vehicle types and self-driving, but there was little (or nothing) to assuage investors who have become accustomed to top and bottom-line growth.   Instead, the company failed to offer guidance about deliveries and potential margin pressures.  Perhaps it was soberingly honest to hear Musk say that he lacked a crystal ball, but it was not when nervous shareholders wanted to hear.  Furthermore, in an AI-obsessed market, it was unpleasant to get another reminder that the CEO is weirdly attempting to hold the firm’s artificial intelligence offerings hostage in exchange for a highly dilutive pay package. 

TSLA has always “sold the sizzle”, and then it actually delivered the steak.  The problem for the company is that investors now expect a big fat T-bone and are disappointed when they only hear a sizzling platter from across the way.

When a company sports a P/E of 70, one can argue that it is priced for perfection.  Yesterday’s conference call didn’t radiate perfection, let alone confidence, and that is why we see TSLA shares getting walloped today.

28 thoughts on “Tesla Collides with Reality”

  1. Anyone who buys stock with a P/E of 70 is taking extra risk above what is necessary. Another thing to think about is that Trump will most likely not support tax breaks for the rich who are buying electric vehicles.

  2. Please check your facts on “another reminder that the CEO is weirdly attempting to hold the firm’s artificial intelligence offerings hostage in exchange for a highly dilutive pay package.”
    If you listened to the conference call, he is asking for voting shares only with no intention of any remuneration, or subsequent dilution, of other shareholders!

  3. I never liked this stock. It became a cult stock, and after I had heard that renowned short seller James Chanos was shorting it–as well as Bill Gates– I had a good year trading bearish options in 2022, mostly selling calls that would expire worthless. I don’t care for electric cars, they have a limited range, and it takes a long time to charge them.
    If and when I ever buy an electric car, it would only be a hybrid.
    A far as self driving robotaxis, this is a Silly Con Valley fairy tale as far as I am concerned. Do you know what insurance would cost? And heaven forbid a child were to be seriously injured or killed when one of these things fails to stop when it should, or make a turn incorrectly. There have already been numerous accidents with self driving cars, as I am sure everyone is aware of. They might be interesting, but I do not believe they will ever be adopted by the masses. Most Tesla cars are sold in China. I have yet to see more than a few in New York City.

  4. Don’t overlook the potential market for the Optimus Robot. This may turn out to be one of Tesla’s greatest strength if they can deliver the promise.

  5. Richard
    I find your opinion on electric cars very short sighted. I live near Vancouver BC and I am literally surrounded by Teslas and all types of electric cars on my drive to work every day. The range of most electric cars is close to that of their gas powered counterparts and it is hard not to see a charging station at your local gas station.
    We have the highest number of electric cars per capita in North America. And we are surrounded by mountains that have highways with charging stations at virtually every rest stop.
    As far as self driving cars goes the future is already here. AI will see to that and we’re not going to stop it.
    Come visit Vancouver some time and you’ll get to watch people in their Teslas checking their emails or putting on their makeup while their car drives them to work.
    Like it or not the future is here.

  6. I think the guy from Vancouver was recently jailed for possibly knowing someone who practiced their faith and free speech in a private setting.

  7. Musk’s request is not dilutive. Shame on you for writing an article with misleading facts. The quarterly earnings were actually great for a car company but, as we all know, they are more than a car company. If this is how you report the facts then I’ll leave my account exactly where it is. One other point, in 10 years GE stock has gone nowhere and Tessa stock is up over 1,400%. Let your readers chew on that.

  8. I believe what you intended to write was, “Yesterday’s conference call didn’t radiate confidence, let alone perfection.”

  9. Elon Musk has been proven to be a serial liar.
    The electricity used by the Supercharger comes from a solar carport system provided by SolarCity, which results in almost zero marginal energy cost after installation. Combining these two factors, Tesla is able to provide Model S owners free long distance travel indefinitely.
    Each solar power system is designed to generate more energy from the sun over the course of a year than is consumed by Tesla vehicles using the Supercharger. This results in a slight net positive transfer of sunlight generated power back to the electricity grid.
    The Supercharger system will always generate more power from sunlight than Model S customers use for driving.
    in 2016, Musk proclaimed … By the end of next year, said Musk, Tesla would demonstrate a fully autonomous drive from, say, “a home in L.A., to Times Square … without the need for a single touch, including the charging.”

  10. The main thing for a future car to do is go from A to B safely. This Tesla fails to do. Also, future electric cars should be self-charging.,.wind, solar,etc. even when the car is moving or braking energy is created. And this, unlimited mileage. Another thing is a lack of quality control…there have comments from customers of missing pieces or pieces ready to fall off. Adjust the above and the profits will come and a lot slower than Wall Street would like….but they will be there.
    PS. Remove self-drive feature, too many are dying from it.

  11. It says a lot about delusion and loss of fundamental business perspective that a PE steak that takes 70 years to digest would be considered “priced to perfection”. There’s big difference between Aged and Stale. It doesn’t take much to get full on tainted meat.

  12. Steve, as others have already mentioned on here, please confirm your facts before making a blanket statement on Musk holding Tesla’s AI offerings hostage. This is regurgitated nonsense from recent media attacks on Musk. I’m personally not a fan of Musk, but the lack of due diligence is unacceptable for us readers who follow your insights on a daily basis.

    Also, for the others (presumably TSLA bag holders), your comments are extremely narrow minded for supposedly “investors”. You are cherry picking factors that fit into your narratives in reaction to TSLA’s recent correction, without considering the bigger picture. EV will dominate the market. AI will leave late adopters behind like the internet and smartphones left boomers.

  13. He definitely wants control – I am fan of Tesla but no fan of Elon Musk. He needs to be gone from the CEO role.

  14. This is not TSLA specific, but I listened to an interview on the podcast “MacroVoices” energy expert, Anas Alhajji today. On EVs, the reduction of oil used by driving an EV is offset by 200% by the manufacturing process of building an EV. If this correct, why are we buying EVs?

  15. I think like any “fairly new“ technology like EV’s, there are going to be hold outs and detractors. The biggest problem I see is the self-driving function, simply because computing technology is still not up to the task of being fail-safe, and for someone who has lived through the dot com era I still think there is a long way to go before we get to an absolutely safe EV or any kind of self driving vehicle. As for Teslas, I don’t own one but have riden in a few. To me the simplicity of electric vehicles, self-driving feature not withstanding, is a plus as well as the seemingly effortless acceleration. Several owners of Tesla’s I have spoken to remarked on the low maintenance and generally lower cost of ownership. Tires seem to be the only cost in general, even after several years and 100k plus mileage. Whether some of us like it or not, the gasoline era is coming to an end, but it will take some time yet. To change an entire industry, and in a broader sense, the oil and gas industries, is a mammoth task, with many implications for countries that depend on it for a large part of their GDP. Decades, not years but given the pressing problems of environmental pollution and warming temperatures, it is inevitable anyway.

  16. Thank you for the discount 🙂 I was worry that they wore going to go up some more before clearing my end of the year bonus.

  17. The data below was laboriously obtained by many, many hours spent at dealer websites. Mr. Musk is effectively doing the job the DOJ Antitrust Division was not allowed or not able to do, specifically, enforcing Section 1 of the Sherman Act. I salute him.

    Please give just one plausible, legitimate business rationale for 601 different steering wheels in 15 years. All parts in all Ford (and all other makes sold in the US) have similar treatment.

    Tesla Steering Wheels 2008 – 2022
    Number of Steering Wheels 16
    Average Years in Use —
    Fewest years in use —
    Most years in use 15
    Number churned in year 1 0
    Number churned ln year 2 0
    Number churned in year 3 0
    Number churned in year 4 0
    % churned after 1 year 0
    % churned after 2 years 0
    % churned after 3 years 0
    % churned after 4 years 0
    Number discontinued 0
    % discontinued 15 years 0

    Ford Steering Wheels 15 years 601
    Average Years in Use 3.2
    Fewest years in use 1
    Most years in use 8
    Number churned in year 1 76
    Number churned ln year 2 128
    Number churned in year 3 155
    Number churned in year 4 158
    % churned after 1 year 12.6%
    % churned after 2 years 33.9%
    % churned after 3 years 59.7%
    % churned after 4 years 86.0%
    Number discontinued 211
    % discontinued 15 years 35.1%

  18. Good article. Overdue subject. The energy used to build an EV is probably equivalent to the energy used to build any other vehicle…and perhaps less, since there are fewer moving parts. Teslas are good cars. the stock is and has been vastly overpriced by the numbers. However, price is simply set by opinion at any given moment. It can change with every new perspective. The idea that one is buying the future might consider the Tucker. It was a fine automobile that is now a collectors’ car. Who will build the self-driving EV that catches on? It’s an open question. A lot of serious folks are racing to be first and best. Battery technology? Same rubric. Tesla’s stock price has a lot in common with odds in a casino. But not the house odds. More like the odds in a card game where you’re playing on the anticipation and fear of others. But EVs will take over the market eventually, if nothing new pops up to make it obsolete…like the Golden Spike did to the Pony Express, which was a brilliant solution for mail to the West in three days…until train service made it irrelevant. PS: Elon is living proof that one can be both a genius and an idiot at the same time.

  19. 70x. Ford and GM are 5-7x. Buy the TSLQ. Stock is going lower. All the other ancillary stuff (robotics, space, etc is too far out to justify the 70x PE).

  20. There is an insoluble problem with self-driving cars. Not only what does it do when it has to choose between hitting a senior or a child in a situation where those are the only choices, but the fact that it has to make that choice in advance when being initially programmed. While judges and juries will always cut a human driver slack for their decision in that split second situation, they will not do so for a decision made by a corporation in cold blood years in advance. This can’t be solved, unless we all sign on -literally – to no fault for auto pilot. A’int happening!

  21. Perfection is the enemy of the good. Self-driving technology seems to be mature enough for long interstate trips, but less so for certain urban areas with far more variables. Why must it be all or nothing? Use it where it works and don’t where it’s not yet fully developed.

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