Analyst's Ask (Nicely) About the Model 3 But How Does Tesla Respond?


With Tesla (NASDAQ:TSLA) reporting earnings tomorrow Wednesday, October 25th, the big question for most analysts is the status of the Model 3. While the hype surrounding the production of the Model 3 is understandable given its astronomical potential, analysts have run into difficulty getting past the charm and enthusiasm of Elon Musk to the financial details.

We can quickly drill down to see the discussion using our BECT dashboards. We analyzed the themes of the 2017 Q2 Tesla Earnings Call and found Capital Expenditures to be a major theme of the call.

Capex was talked about for good reason, as Tesla management projected it to rise from $1 billion to $2 billion, and mainly attributed the increase to the production of the Model 3. Tesla's fate, at least according to the street, hangs on the success of the Model 3, Tesla's first attempt at a lower cost car aimed at the broader automobile market. Given Tesla's share price and need for aggressive Capex spending for growth, were analysts able to get details on use of those huge projected increases, and were they due to the Model 3? Below are the questions on Capex from the last call:

Using the BECT dashboard's, we were able to quickly get this information. These are fair questions as analysts were pressing for hard numbers for their models to assess the evidence for any problems and determine how much the company would continue to need to raise for expansion.

How did Tesla management respond? Again, our BECT dashboards provided the answers quickly along with tone indicators for each response (all neutral with one negative).

Are these responses reassuring to shareholders and analysts? Elon Musk's initial response to a question about Capital Expenditures is that these predictions are "actually very hard for us to know" and "we aspire to be less dumb over time." While it can be said that it is great that Musk is being completely honest, it should be scary to investors that Tesla shares so few specifics. For a company that has the Model 3 successfully priced in, it would seem that the share price can only go down from here. Especially since Tesla's management resists responding with hard numbers, nothing beyond "we have made some improvements here."

Out of the 7 questions asked about Capital Expenditures only one gets a response with real numbers on a usable timescale. The answers also mixed with Gigafactories, foreign expansion, solar panels and batteries, so much so and with so few specifics that it seems they either don't know or don't want the market to have specifics to hold them to.

It seems that Tesla has weak cost controls and that the improvements they've made with their Capital Expenditures may be covering a bigger problem. "The cost of introducing the new vehicle has left the auto maker with little cash to spare," reported by WSJ.

In the automobile industry factory investments drive capacity growth so these numbers are critical to a fundamental analysis of Tesla's plans and performance. If Tesla never provides hard answers to these questions about their financials we can't help but conclude that investors are just hoping this story stock isn't a hype train to future losses.

Tesla is an incredible story and the company has come a long way, but eventually, shareholders will need to see execution with real numbers and revenue or this stock will come down to earth.

Thomas

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