Tesla has posted record delivery numbers in the quarter ended June, but the founder of an investment research firm believes that the stock is still caught in an “irrational bubble”.
Tesla shares jumped 6 percent on July 3 "after better-than-expected quarterly deliveries showed that Chief Executive Elon Musk’s plan of boosting volumes through discounts was working", stated a Reuters report. But Thomas Thornton, founder of Hedge Fund Telemetry, an investment research firm, pointed to the other side of the story.
“$TSLA (Tesla) has always been an irrational stock and today we are in an irrational bubble market. I always (sic) size my position accordingly,” tweeted Thornton.
Also read: Tesla's blistering rally continues after quarterly deliveries beat
Thornton said that the deliveries were strong and better than consensus. This quarter, its delivery numbers touched 4,66,140 vehicles, which were 80 percent higher than what it was last year, and higher than the consensus estimate of 4,48,350.
But according to him, the numbers should have been higher. “Bulls will celebrate but let’s remember delivery numbers even when missed have been rationalised. Deliveries thanks to 6 months of continuous price cuts should obviously be higher,” he tweeted.
He pointed out that this is just a sign of weakening demand which could only get worse.
“Cutting prices is a response to weakening demand and high inventories. The order backlog globally has dropped to the lowest level ever and factories are running well below capacity. Having older stale cars with lack of a new car or one with significant redesign will only make sales more difficult,” he wrote.
The price cuts will also not win over institutional investors, who care little about delivery numbers and more about the bottomline.
“Institutional investors are not looking at delivery numbers as $TSLA fans do since it’s more about earnings, margins and cash flow. Earnings are not growing at same rate as stock increase due to the heavy price cuts,” he wrote.
Also read: India is as important to Tesla as it is to the country
Thornton drew attention to the weakening cash flows. “Revenue could be up $1.5b QoQ while EPS (earnings per share) might be down QoQ (def not spiking) as margins will drop again. Cash flow missed horribly last quarter and might be negative this quarter,” he wrote.
Given all this, he reasoned that the stock is caught in an irrational bubble market.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
