Tesla deliveries and a Twitter cascade
The recent Tesla selloff has received remarkably little attention. Tesla stock is down by almost 35% from the 21st September high, yet coverage is scant, especially compared to the usual levels of histrionics and hyperbole that surround the automaker and illustrious founder Elon Musk. What’s going on?
Oddly enough for Tesla, this could be a purely fundamental move. Preliminary Q3 deliveries came in at approximately 340,000 vehicles, with production hitting around 366,000 vehicles. Goldman Sachs noted that deliveries were below both their own estimate of 374,000 and their ‘investor expectation’ estimate of 360-365,000.
Tesla attributed the relative ‘weakness’ (deliveries were up 42% year on year, but below estimates) to logistical challenges and the difficulty in securing sufficient transport capacity at a reasonable cost at quarter end.
Nevertheless, the delivery drop could be seen as an early sign of demand weakness. In their 3rd October note, the Goldman analysts expected the news to be poorly-received, and that call now looks prescient (with the benefit of hindsight):
We expect the stock to pull back on this news given that deliveries were below consensus which is typically a key driver of the stock. Moreover, given that wait-times for vehicles in China have declined to a few weeks and macroeconomic conditions have become more difficult in general, some investors may view the weaker 3Q deliveries as the beginning of a period of sustained demand weakness.
However, we believe the company remains well positioned to drive solid volumes and also margins/FCF going forward, and the vehicles in transit issue is a mitigating factor for the 3Q delivery miss.
Musk’s supposed to be closing the deal to buy Twitter before October 28th. But it’s not clear if he still has the backing of the investors that originally pledged to finance the $44 billion deal.
Insider grabbed a scoop from Andrea Walne, a general partner at Manhattan Venture Partners. A couple of choice quotes stood out:
- "We talked to the other investors, everyone's trying to get out of it, no one thinks the company should be valued at $44 billion"
- "There's a lot of ambiguity right now as to whether or not any of us are actually obligated to fulfil our side of this"
If Musk’s investors can find a way to wriggle out of the agreement, there’s a risk that Musk will need to sell a larger stake in Tesla in order to close the deal. All else equal, a big seller is likely to put downward pressure on the stock price, especially if it’s the enigmatic founder cashing out.
Investors and analysts will be keenly scrutinising Tesla’s earnings report on Wednesday along with any accompanying comments for clarification. The major themes continue to be production, deliveries and profit pressures amid supply constraints.
However, negative news on the Twitter deal could override anything fundamental influencing Tesla’s share price. If investors fear a large block sale of Tesla stock, they may rush for the exits all at once, potentially causing a self-reinforcing price cascade.
Never a dull day with Tesla!
Not investment advice. Past performance does not guarantee or predict future performance.