I discussed Tesla’s fourth quarter production and delivery forecast for the year and what it’s likely to accomplish in yesterday’s post. It was merely a data-driven attempt to align expectations with likely outcomes. I didn’t anticipate revisiting the subject anytime soon, but this morning I noticed a tweet that made me think of a number of new ideas.
Dan Ives, Managing Director and Senior Equity Research Analyst at Wedbush Securities, posted the tweet. For a few years, Dan has covered Tesla, and he also covers here’s a list other tech businesses (including Rivian, Lyft, GM, and Apple). Dan tweeted the following:
We continue to be bullish since Tesla is one of our top long-term disruptive stock picks. However, for Musk, tomorrow is the first day of executing on reasonable growth and unit projections into 4Q/2023. The street demands goal execution, so stop making excuses.
Simply put, it has an intriguing tone. It may have been the tone or the specifics of the demand, but it took me back a few years. Since 2012, we have been covering Tesla, and I would say that from roughly 2012 to roughly 2020, there was a great deal of doubt surrounding Tesla’s growth objectives. For years, notably by Wall Street, Tesla’s target of 500,000 vehicles annually by 2020 was ridiculed. Because of this, if you had the necessary resources, foresight, and guts, you could buy a lot of high-value Tesla shares for a very low price. Because of this, Tesla’s NASDAQ:TSLA stock and business tales during the past ten years have been among the biggest, if not the biggest. Elon Musk’s Tesla production and delivery (i.e., consumer demand) targets were viewed as absurd. Tesla needed to set more reasonable expectations, according to serious people who were often suggesting that.
Undoubtedly, Tesla occasionally fell short of its short- and medium-term goals, particularly when the Model 3 was ramping up and it was going through “production hell.” However, the long-term prediction was remarkably accurate overall.
As was said at the beginning, the purpose of the article on Tesla’s production and delivery prediction for the fourth quarter was not to exclaim, “Oh my! Look at how inaccurate Tesla’s prediction is likely to be! Its sole purpose was to offer the most accurate, data-driven estimate we could on what to anticipate from Tesla in the fourth quarter and hopefully to assist moderate expectations about what is likely or achievable from the company. It also took some time to attempt to figure out what exactly transpired to cause a little decline in Tesla sales. In the big picture of Tesla’s expansion and development, a marginally missed fourth quarter goal is a mere penny in the leprechaun gold pot. It’s not the huge problem Dan Ives appears to be portraying, in my opinion. There are numerous sharp and critical responses to Dan’s tweet . I want to draw attention to some of the comments that we received yesterday under my article since I believe they are the most helpful in putting this tale into perspective.
“50% output growth in something as capital demanding as automobiles is extraordinary,” said Electricity Electricity.
“Except when we start hearing about cars lying on the lots for extended periods of time without being sold, differences between production and delivery don’t matter.
And anyone who attempts to value Tesla solely on delivery is liar. Anything’s valuation is more of an art than a science, and mega-meme stocks like TSLA are especially susceptible to this.
The last sentence, “Valuation for anything is more an art than a science, and that’s particularly true with mega-meme stocks like TSLA,” is my favorite of the entire passage. 😀
I belong to the ‘this is nitpicking’ group, says Sri. Increasing output is the most challenging problem to resolve. It doesn’t matter if they deliver, let’s say, 20–30K cars in the final week of 2022 or the first week of 2023. The worry about Chinese demand seems exaggerated. But what if there is a significant economic problem and demand declines? Wouldn’t the cost of raw materials and components decrease as well? And which EV manufacturer can easily lower the pricing by 5–10% while still turning a respectable profit?
“I do realize that these issues are important to Wall Street, and as a result, the short-term volatility of the stock price can be rather substantial. But what’s new if you’ve been watching this since 2015?
I’m not sure if the China demand fear is reasonable or not. We will have to wait and see how things turn out. I do agree that Tesla would simply decrease pricing if it became a significant worry for the firm, and that Tesla has absurdly large margins that allow it to do such things when necessary. I agree that I anticipate short-term volatility from Wall Street, but I also don’t closely monitor or give much thought to such short-term variations.
“Even hitting under 50% would be a non-issue,” argues Will Meek. However, there is a high likelihood that they will meet a 50% increase in production.
“Sure, trolls will shout from the tops of the hills, but it is pointless. At the conclusion of the quarter, more vehicles in transit indicates more automobiles manufactured.
Even more, growth will ineluctably slow if Tesla gains a sizable market share.
“Making less than half is a nothing burger.”
There are many additional excellent comments below that article that present related arguments, refute those arguments, and discuss whole different subjects (like the current situation in China, where the country is headed, and its complicated relationship to Elon Musk and Tesla). I advise reading the entire discussion.
My viewpoint on the Tesla growth story as a whole hasn’t altered. Even so, I believe it wasn’t fully said yesterday. If Troy Teslike’s prediction comes true, I still anticipate Wall Street to react unfavorably, perhaps even harshly, to the lower-than-expected delivery. But does it really matter in the long run?
The main concern seems to be whether Tesla can actually continue to grow at a rate of 50% annually for the remainder of the decade. While I was right because I believed the story, many people were mistaken about Elon Musk’s optimistic predictions for Tesla in the previous ten years. Even the most famous winners don’t always prevail, and businesses can experience phenomenal success that first appears like it will last forever but ultimately ends. At such a massive scale and just when competitors are genuinely bringing solid solutions to market, 50% annual growth is ambitious. Not to mention the macroeconomic trends that can always have a significant impact. All eyes are on Tesla’s long-term strategy, and any fixation over very narrowly missing targets in Q4 2022 should be handled with caution.
Looking back, and briefly returning to the Dan Ives tweet and the article’s title, Tesla’s long-term sales projections have been excellent, almost textbook-like, and dead on. They have undoubtedly been helpful advice, thus I find it inappropriate when people make colorful, dramatic appeals for greater accuracy. The past is not indicative of the future, so it will be interesting to see if it offers the same level of long-term precision.
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