Tesla (TSLA, Financial) may have many problems, but it has never struggled to come up with novel ideas.
On March 8, the company applied to build presumably the first-ever electric car supercharger station and restaurant. So weary Tesla drivers can refresh as they recharge.
Tesla submitted the building permit proposal to the city of Santa Monica with no further description than the address, 1401 Santa Monica Blvd., down the street from its showroom. The concept originated in the mind of Tesla founder Elon Musk, who tweeted about it in January. “Gonna put an old school drive-in, roller skates & sock restaurant at one of the new Tesla Supercharger locations in LA,” the tweet read.
Despite the whimsy, Tesla has faced a daunting week. The Wall Street Journal pointed out that it would have to report in April whether it would likely meet its goal of producing 5,000 Model 3 electric sedans per week, as promised in a fourth-quarter earnings release.
“Meeting the goal of 5,000 Model 3s a week by the end of June is critical to generating enough cash to sustain operations without having to raise more capital,” The Journal said, noting that the company used $1 billion in cash during 2017. That left Tesla with $3.4 billion in cash to end the year.
Tesla also assured investors it would introduce 2,500 Model 3 vehicles by the end of March, with the caveat that meet such deadlines has proved difficult.
“It is important to note that while these are the levels we are focused on hitting and we have plans in place to achieve them, our prior experience on the Model 3 ramp has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time,” Tesla said in the release.
Musk’s company was hit further this week by a Bloomberg piece detailing a suspension in production of its Model 3 in February that the company did not report. Tesla assembles the Model 3 at a plant in Fremont, California. But the company planned downtime to “improve automation and systematically address bottlenecks in order to increase production rates,” it told Bloomberg.
Tesla’s share price the next day soared 5.6%, versus 0.1% for the S&P 500, catching Tesla watchers by surprise. Barclays Capital analyst Brian Johnson attributed the pop to the Bloomberg article, particularly the comments on the Model 3 production ramp up, which helped demystify it for investors.
“First, the comments reinforce to us that the shape of the Model 3 ramp has been misunderstood, and is likely to remain misunderstood,” Johnson said. “While bulls assume production should steadily increase, the production headline reinforces the reality that the ramp will be lumpy, with weeks of downtime/low production as they address bottlenecks (see below for a representative shape of how weekly production may look).”
The uneven production numbers will translate into lumpy gross margins, which Tesla has projected at 25% once it meets 5,000-per-week production, Johnson said.
Three investors tracked by GuruFocus, each employing a value investing philosophy, held stakes in Tesla as of the fourth quarter-end: Ron Baron (Trades, Portfolio), Spiros Segalas (Trades, Portfolio) and Primecap Management.
Baron, CEO, chief investment officer and portfolio manager of Baron Funds, owns 1,612,051 shares of the company through his firm. His stake totals 0.95% of Tesla’s outstanding shares and 2.31% of his total portfolio. In the fourth quarter, Baron Funds increased its Tesla position by 0.63%, buying 10,040 shares.
Baron Funds started a position in Tesla in the first quarter of 2014 when the price averaged $199 per share. The company’s stock traded around $324 on Friday afternoon.
Though a modest portion of the funds overall, Tesla is the second largest position in Baron’s Baron Focused Growth Fund, representing 14.5% of net assets. Production slowdowns did not change the long-term prospects or competitive advantages, Baron said in a fourth-quarter letter.
Ishay Levin, Baron Funds analyst, also commented on Tesla in the fund’s fourth-quarter letter.
“Tesla, Inc. makes electric vehicles (EVs), solar products and energy storage solutions. Shares fell on news of production issues with the Model 3 EV. As the slowed ramp-up negatively impacts cash flow, investor expectations that Tesla will look to raise cash put pressure on the stock. Though the company unveiled two promising new products, Model 3 continues to be the main driver for the stock as it will take time to bring these to production. We believe Tesla will solve its production issues and expect Model 3 to play a key role in its strategy to bring EVs to the mass market,” Levin said.
Spiros Segalas (Trades, Portfolio), founder, president and chief investment officer of Jennison Associates, manages the Harbor Capital Appreciation Fund, held 1,210,270 shares of Tesla at the end of the fourth quarter. The stake totals 0.72% of its outstanding shares and 1.39% of the Harbor Capital Appreciation Fund.
In the fourth quarter, Segalas added increased his Tesla position by 8.02%, buying 89,818 shares. He started the position in the fourth quarter of 2015, when the price averaged $240 per share.
Segalas did not comment on Tesla in his fourth quarter letter, but reiterated his investing strategy in selecting stocks in his portfolio.
“As fundamental, bottom-up investors, we examine company and industry prospects over the near- and long-term,” Segalas said. “Numerous factors, including company fundamentals, macroeconomic conditions and market risk tolerance, cause variability in the way equity markets price securities in the short-term. We constantly assess if and how these factors affect our investment thesis and company long-term value.”
Primecap Management, which is overseen by co-CEOs Theo Kolokotrones and Joel Fried, held 1,085,790 shares of Tesla. The stake totaled 0.64% of the company’s outstanding shares and 0.26% of Primecap’s stocks.
The firm holds Tesla only in its consumer discretionary segments of its Odyssey Growth Fund and Odyssey Aggressive Growth Fund. The company was a strong contributor in the fourth quarter. Appreciating 68%, it joined Chegg (CHGG, Financial) (gaining 133%) and CarMax (KMX, Financial) (up 50%) in its Aggressive Growth Fund as the leading stocks in its consumer discretionary portfolio, which advanced 35% for the fiscal year ended Oct. 31, 2017, surpassing the 20% return for the index.
Primecap trimmed its Tesla position by 0.51% in the fourth quarter, selling 5,550 shares. The position predates the third quarter of 2012, but the company bought 1.44 million shares that quarter, when the price averaged only $30 per share.
See more about Tesla at its financial page here.