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How to Play Tesla Stock Following Elon Musk’s Q3 Delivery Miss

Wayne Duggan

After years of volatility and unpredictability, Tesla (NASDAQ: TSLA) stock investors have at least one thing they can count on. Elon Musk will over-promise and under-deliver. And TSLA stock will over-react.

How to Play Tesla Stock Following Elon Musk's Q3 Delivery Miss

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Tesla shares tanked after the company reported a record 97,000 vehicle deliveries in the third quarter. If investors are upset with the market reaction, they have Musk to blame.

TSLA stock investor should be wise to the pattern by now. Tesla stock tends to rally ahead of  important financial deadlines as expectations rise beyond a reasonable level. The shares come crashing back to earth when the company fails to live up to expectations. The tragedy of the situation is that Musk and Tesla always seem to find a way to turn what would otherwise be a positive headline into a negative.

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Elon’s Just Not a ‘Numbers Guy’

Last quarter, Tesla reiterated its guidance for full-year 2019 deliveries of between 360,000 and 400,000 vehicles. As for the third quarter, Tesla only said it expected sequential improvement over its 95,356 vehicles delivered in the second quarter. Still, the full-year guidance implies Tesla must average at least 101,000 deliveries in the third and fourth quarters to hit the low end of its full-year guidance.

Love him or hate him, Elon Musk isn’t a numbers guy; he’s absolutely terrible at setting realistic expectations for TSLA stock. Instead of talking down expectations for Q3 deliveries, a leaked email from Musk last week suggested 100,000 vehicle deliveries was achievable.

Apparently it was not.

Not only did Tesla miss Musk’s ambitious email target, it missed consensus Wall Street estimates as well. Analysts were skeptical of Musk’s 100,000 target. But the consensus estimate still called for 99,000 deliveries. In that sense, Tesla’s third quarter was even worse than its second quarter, when it also reported a record 95,200 deliveries. Looking ahead, Musk has already said Tesla will break even in the third quarter after reporting a $408 million Q2 loss.

TSLA Stock Valuation

I always encourage Tesla stock investors to keep perspective on the situation. Record deliveries are record deliveries. The midpoint of the full-year guidance seems to be off the table at this point. Full-year 380,000 deliveries would require Q4 deliveries of 124,800 vehicles. That’s not going to happen. However, it would only take 105,000 deliveries in Q4 to at least hit the low end of company guidance.


Seasoned investors know hitting the low end of guidance ranges is rarely bullish. But with  TSLA stock down 31% year-to-date and 4.5% overall in the past five years, the low end of guidance may be good enough for frustrated investors at this point.

If it weren’t for the absurd TSLA stock market valuation, record delivery numbers might be something to celebrate. But with a market cap of $41.7 billion, investors are valuing Tesla stock higher than Ford (NYSE: F), which has just a $34.8 billion market cap. Tesla is hoping to squeak by with 360,000 deliveries this year. Last year, Ford delivered about 6 million vehicles.

Realistic Expectations

The key to TSLA stock is realistic expectations. The company has a lot of good things going for it. Tesla stock bulls seem to have no problems seeing these positives. But the EV maker also has plenty of red flags that should give investors pause, starting with it’s uncomfortably high valuation.

Wedbush analyst Daniel Ives said profits and margins are a major concern for Tesla as Model 3 sales replace Model X and S sales.

“While the doomsday scenario is off the table with cash in the coffer (convert) and Model 3 sales ramping, the question on the minds of investors is around profits into 2020,” Ives wrote recently.

Tesla reported 17,400 Model S and X vehicle deliveries in its record third quarter. That number was down 37.2% from a year ago.

Like many other Tesla stock bulls and enthusiasts, Ives noted Tesla remains at the forefront of a major long-term growth trend. But that doesn’t necessarily mean TSLA stock is a buy at current levels.

“The stock will be range-bound in our opinion until Musk & Co. update the Street with the financial results, profitability picture, and 4Q guidance later this month trying to regain the credibility of the Street,” Ives wrote to clients.

Wedbush has a “neutral” rating and $220 price target for TSLA stock. That target implies about 5.6% downside from current levels.

As I have said many times, Tesla stock investors need to understand that extremely high expectations are still priced into the stock at current levels. Tesla needs to put up some big numbers to exceed expectations. Q3 delivery numbers are just the latest example of how Tesla has repeatedly failed to do so.

As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.

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