Tesla’s “Production Hell” and “Logistics Hell” Tanks Shares
“Living easy, living free. Season ticket on a one-way ride.”
AC/DC ain’t got nothing on Tesla Inc. (Nasdaq: TSLA).
After going through “production hell” and “logistics hell,” CEO Elon Musk is in his own personal hell this morning.
Tesla posted a loss of $1.12 per share in the second quarter, missing even the most bearish of projections. Revenue also came up short of analyst expectations at $6.35 billion.
But here’s the real kicker: Gross margin declined to about 18.9% compared to expectations of about 20%.
This is a big deal.
Because Tesla’s dream has always been predicated on selling the “everyman’s car.” The Model 3 was supposed to be that car. Remember when Musk touted a price tag of $35,000 for the Model 3?
That ain’t happening.
Tesla’s now billing the Model 3 as a “premium” vehicle. In yesterday’s earnings report, the company bragged about delivering a record 95,356 Model 3s — a 50% increase from the prior quarter.
And yet gross margin still fell. If anything, the Model 3 needs to be more expensive for Tesla to boost profits.
So much for Elon Musk’s promise that Tesla would be back in black.
I’ve been a perennial Tesla bull. No, really. Read my prior Great Stuff articles for proof.
I love the company’s products, its environmentally friendly vehicles and solar power ideas.
But even this bull is having his doubts now.
The Tesla dream of an electric vehicle (EV) in every driveway is fading fast. Demand isn’t the problem. It never was.
Profitability is. It doesn’t matter if you make the best, most efficient and most stylish EV on the planet. If you can’t turn a profit even when you post record deliveries, something in your business model is flawed.
I’m not completely jumping ship on Tesla. The company has long-term value from its products alone.
But Elon Musk has some real soul-searching to do right now. How do you turn record deliveries into profits?
Until we see some uptick on that front, I’m calling a hold on TSLA shares. They’re just too hot to handle right now.
If Tesla set your portfolio on fire, I’ve got the perfect place for you to cool off.
This year’s Total Wealth Symposium is being held on the cool shores of Amelia Island, Florida. You can relax on the beach and let the soothing ocean waves wash away those severe market burns.
This premier Banyan Hill event takes place September 12–14 and is the best place to relax and rub elbows with your favorite experts: Paul Mampilly, Michael Carr, Matt Badiali, Ted Bauman … they’ll all be there!
They’ll also have exclusive market advice and recommendations just for you. Previous attendees have had the chance to capitalize on gains of 1,665% in just six months!
That sounds like excellent burn ointment to me.
But only roughly 100 spots remain, so you need to act now. I have your invitation waiting right here.
The Good: Going Home
Meritage has it all, with stock-driving superpowers such as a 22% increase in total orders, Street-beating earnings and revenue, improving gross margin and better-than-expected 2019 guidance.
MTH shares are surging on the news, building up a rally of nearly 16% today.
The Bad: Pining for the Fords
Ford Motor Co. (NYSE: F) isn’t quite an “ex-parrot,” but it certainly isn’t flying anywhere anytime soon. Beautiful plumage, though.
Unfortunately, the plumage doesn’t even enter into it.
Ford missed earnings by $0.03 per share and guided full-year earnings well below Wall Street’s expectations.
And yet, CEO Jim Hackett remains positive about his turnaround plans: “Midway through this key year of action, we are pleased with the progress we are making toward creating a more dynamic and profitable business.”
Investors, however, don’t think Jim can hack it. F shares are down more than 7% on Ford’s earnings miss.
The Ugly: One Hot Mess
Shares in The Boeing Co. (NYSE: BA) have plummeted so fast in the past week that oxygen masks are dropping from their overhead compartments. Investors, make sure you buckle yourselves in before helping others.
The problem is bigger than just the 737 MAX 8. There are now reports of issues with the 787 Dreamliners. “I am concerned the market is underestimating just how bad things could go for Boeing,” said Bill Blain, an analyst with Shard Capital.
The problems are now spilling over sharply into the rest of Wall Street. Southwest Airlines Co. (NYSE: LUV) announced it’s pulling out of Newark Liberty International Airport because of the grounded 737 MAX.
The turbulence has even created problems for the Dow, pulling the famed average lower over the past two trading days. Some analysts even think the Boeing issue could be a spark that ignites a market crash.
That’s a bit sensationalist, but Boeing is big enough to create some severe problems for the market if these issues widen any further.
It’s Marco Polo time on Great Stuff. Let’s dive into the mailbag.
I told you on Tuesday that I was going to get hate mail about Apple Inc. (Nasdaq: AAPL). My readers didn’t let me down. There were way too many comments to list, so we’ll just hit a couple. E. Dines wrote:
Your analysis of the Intel-Apple deal for the 5G modem deal is quite flawed.
Do you have any technical background, i.e. in EE or physics, etc.?
I have to admit that iPhone physics wasn’t something I considered. I was more concerned about Apple reportedly paying $1 billion just to catch up to competitors in 5G. Is there a physics equation I’m missing in there? Feel free to let me know.
Another reader had a question regarding price target upgrades on Apple. Moe A. wrote:
Well, Goldman Sachs initially had a price target of $171 on AAPL. Price targets aren’t the current price of the stock, but what the analyst believes the stock is worth.
In other words, Goldman thinks AAPL is worth more than it did before, but less than the current market value. It was a “lift,” but clearly not a bullish one.
And now for something completely different … Steve G. likes options and wrote:
Thank you, Steve, for being both a Great Stuff reader and a subscriber to Banyan Hill services! Those are some amazing products you’ve got there … Paul Mampilly and Michael Carr both offer excellent options trading advice.
Since you’re interested, I’ll work to include some options trading ideas in future editions of Great Stuff. I’m no slouch in the options field, either. In fact, most of my stock market background is in options trading.
Maybe next week’s Great Stuff stock pick will have an options idea as well. Hmm … the gears are already turning.
Great Stuff Picks: NOW Is the Time, the Time Is NOW
The wait for your Great Stuff pick of the week is over! (And there was much rejoicing!)
We have an opportunity today, one driven by an overzealous market sell-off based on valuation.
In fact, the two are actually partners!
ServiceNow shares have been on a serious tear this year, gaining more than 55%. That’s impressive for a company with a $53.32 billion market cap.
The company earned it. Revenue growth averaged better than 30% for the past year, and earnings surprised analysts by an average of 18.4% for the same period.
In short, Wall Street investors continue to underestimate ServiceNow’s potential.
The same holds true today. That earnings report I was waiting on?
Last night, ServiceNow reported earnings of $0.71 per share on revenue of $833.9 million. The consensus target was a mere $0.63 per share with revenue of $832.1 million.
The company even guided above analysts’ third-quarter expectations.
It’s clear that Wall Street experts don’t know how to deal with ServiceNow’s explosive growth.
As of this writing, NOW shares are down about 3% due to valuation concerns. The stock trades at about 15.7 times its 2019 revenue, which is higher than sector peers Workday Inc.’s (Nasdaq: WDAY) 13.4 times and Adobe Inc.’s (Nasdaq: ADBE) 13.3 times.
But the stock is rebounding sharply from its lows as investors realize what a bargain they’re getting.
You too can get in on that bargain. ServiceNow is only going to grow from here. Today’s 3% drop is just the opportunity you need to get in on this high-flying long-term investment opportunity.
The bottom line: Buy NOW.
Until next time, good trading!
Great Stuff Managing Editor, Banyan Hill Publishing