Tesla Motors, Inc. (TSLA) designs, develops, manufactures and sells high-performance, fully electric vehicles. The electric car company revealed in it’s most recent earnings report that it lost $16 million, equivalent to a loss of 13 cents per share, falling well short of analysts’ expectations of 31 cents per share. Revenue was $1.1 billion, up 44% from a year ago, but also below analyst estimates of $1.2 billion.
The electric car company’s stock price fell over 7% in after hour trading following the disappointing earnings report. The stock had been up roughly 10% over the last year, after it surged 344% in 2013. Concerns about demand for the company’s Model S weakening and productivity issues in China have surrounded the company’s headlines recently, and the weaker-than-expected earnings report will do nothing to ease these concerns.
Tesla Set Up For Strong 2015
Tesla delivered 32,733 Model S sedans in 2014, slightly missing its target of 33,000. However, it did meet its goal of manufacturing 35,000 cars for the year. CEO Elon Musk explained the delivery numbers in a letter to shareholders, revealing that 1,400 car deliveries were impossible to deliver in the quarter because of customers being on vacation, severe winter weather, and shipping problems. These vehicles were delivered in January instead of December, damaging figures on the earnings report.
Besides the excuses for why Tesla underperformed in the most recent quarter, Musk remained extremely upbeat about the company’s outlook in 2015. According to Musk, Tesla’s recent problems in China were being blown out of proportion, even as it was reported on Tuesday that only 120 Model S sedans were delivered in the country for the month of January. The results in China were irrelevant to Tesla’s results in 2014 according to Musk, as the company does not have any demand problems globally.
Figure 1. Source: Forbes.com
In fact, the company’s challenge is building and delivering enough of its cars to meet demand in a timely fashion. But Tesla plans to spend a large amount of money from its operating cash flow to increase its production in 2015, believing a high level of capital expenditure now will allow it to capture future revenue. The company now predicts it will ship 55,000 vehicles in 2015, building more Model S sedans and the Model X SUV crossover, slated to arrive in mid-2015.
Besides ramped up production in 2015, Tesla is using its lithium-ion battery technology to position itself as a frontrunner in the emerging energy-storage market. Combining solar panels with large, efficient batteries could allow some homeowners to avoid buying electricity from utilities. Musk said the product unveiling would occur in the next month or two, and it could change the way consumers buy electricity, offering huge growth potential for the company.
Meanwhile, Tesla’s gross margins remain fairly strong, slightly above 25%. That is high for the auto industry, with major automakers targeting margins in the 10% range. The company’s margins would have been even better if it had not been for currency headwinds. Besides the strong margins, Tesla is also trading over 30% lower than its peak price, meaning it is an attractive stock to add to a long-term portfolio.
Algorithmic Forecast For Tesla Over Last 12 Months
I Know Firstsupplies financial services, mainly through stock forecastsvia their predictive algorithm. The algorithm incorporates a 15-year database, and utilizes it to predict the flow of money across 2000 markets. The algorithm has more data to forecast within the long term and, naturally, outputs a more accurate prediction in that time frame. Having said that, intraday traders, along with short-term players, will also benefit by taking the algorithmic perspective into consideration.
The I Know First algorithm was able to correctly predict the behavior of Tesla’s stock over the past year. Figure 2 is an I Know First algorithm prediction made on February 9th, 2014. The self-learning algorithm uses artificial inelegance, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets.
The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions. The middle number is indicative of strength and direction, not a price target. The bottom number, the predictability, signifies a confidence level.
In this forecast, Tesla had a signal strength of 30.20 and a predictability indicator of 0.29 for the one-year time horizon. In accordance with the algorithm’s prediction, the stock price increased 16.59% over that time.
Figure 2
Algorithmic Forecast For 2015
Having demonstrated how I Know First’s algorithm was able to correctly predict the movement of Tesla’s stock price, it is worthwhile to see if the algorithm agrees with the bullish fundamental analysis of the company. Figure 3 includes the three-month and one-year forecasts for Tesla from February 12th, 2015. In both forecasts, Tesla has a positive signal, indicating the algorithm is bullish for the stock.
Figure 3
Conclusion
Despite the poor earnings report, Musk did not sound worried during the earnings call with investors. In fact, he compared Tesla’s potential to Apple when discussing the future of Tesla and the lofty valuation he envisioned for the company. While that may not be realistic at this point in time, the stock is trading at a substantial discount from its peak price in September of 2014, and is likely to rebound with stronger earnings in the first quarter of 2015. The company was always likely to see reduced growth in 2014 after the way it skyrocketed in 2014. While current concerns over the company’s performance in China have dragged the stock price down, the new Model X SUV and increased production in 2015 will drive revenue growth in 2015, and the stock price will start to ascend once again.
