Tesla Value Collapses As Outlook Fails To Impress
Tesla Motors Inc (NASDAQ:TSLA) released its earnings numbers for the first three months of 2014 on Wednesday afternoon after the market closed on Wall Street. The company's numbers looked pretty good at first, but a nervous market drove the price of the company's stock down more than 8 percent in overnight trading. Today's market will be a serious test of the company's resilience to negative headline pressure.
The impetus for the loss of confidence appears to have come from Tesla's guidance for the remainder of 2014. The company gave guidance that was weaker than expected for the remainder of the year, and that appears to have irked investors in a nervous market.
Tesla Earnings Show Weakness
Tesla Motors Inc (NASDAQ:TSLA) looked pretty strong coming out of last nights earnings. The company's earnings came in at 12 cents per share, well ahead of the 7 cents expected by analysts. Revenue for the three months hit $713 million, slightly ahead of the $699 million analysts were forecasting by consensus. The company managed to sell more Model S units in the quarter than generally expected, and gross margins were strong.
The company's earnings did show a little bit of weakness, however. Despite strengthening gross margins, operating margins at the company are still thin and they don't seem set to thicken all that quickly. The company forecast a marginal profit in the second quarter of the year as operating costs continue to take a chunk out of the company's bottom line.
The increase in those costs really matters as analysts try to figure out how Tesla will perform in the coming years. The company may not be able to make the kind of profit generally expected if it cannot keep costs down, and that will negatively impact its long term future.
Tesla Is A Matter Of Faith
Tesla investors should be well used to looking ahead. The company's stock price can only be justified by the imagination of a bountiful future, and a certain discount of the elements of the present must be worked in. Elon Musk's electric car company is going to hit a lot of hurdles in the coming years, and each new challenge will send some of the company's investors on their way.
Yesterday's earnings report made a lot of people very nervous about the medium-term future of Tesla, and with stock trading above $200 they should have been nervous. The company is moving away from the past as quickly as it can, but its valuation requires a certain mindset and a whole lot of faith. When the market opens on Wall Street later on this morning, the extent of the loss of faith will be known.
Tesla relies on the faith of its investors to keep growing. When it loses that faith, as it did on Wednesday, it's going to see a contraction in value. The mindset of the unswayed is that their reward will be greater, but those with little faith aren't seeing that reward clearly.
Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.