Tesla 4Q & FY numbers - beat on Revenue

Tesla reported numbers after hours last night. Tesla is a business that is in build up phase, it is a hugely capital intensive business, led by a fellow that wants to change the world tomorrow. Elon Musk may not necessarily be the inventor of the electric vehicle, he certainly is at the beginning of a momentum shift where consumers are deciding that fossil fuels are not necessarily the future of powering automobiles. The combustion engine design has been tweaked over the decades, it certainly has not really changed that much in that time. Musk wants you back off the grid, he wants you to consume battery technology and be reliant on the sun for your power. I was chatting to a senior fellow who recently attended the mining indaba in Cape Town, he said that loads of people were interested in the raw materials for battery technologies. The more that the mining companies produce as a result of demand, the better for the consumer. You get the sense that the momentum shift is already afoot.

Let us take a look under the hood - Tesla Fourth Quarter & Full Year 2016 Update. The Model 3 production will start in July. The target is 5 thousand vehicles per week in the last quarter of this year, and then to ramp that up to 10 thousand vehicles per week in 2018. By my best count, that is looking at 500 thousand vehicles a year, something that they said they would achieve. As they say in the release, this will require an expanded network, which will require the company to have more charging points, more service functions, more retail outlets. Battery cell production has started at the Gigafactory 1. Remember that the company has recently acquired all of the shares of Solarcity.

On the production front of the existing vehicles, the amazing Model S and Model X, the company managed to produce 77 percent more vehicles from the same comparable quarter last year. Revenues for the year grew 88 percent year on year, total gross margins grew year on year, both those metrics fell in the three months prior quarter. The company recorded another quarterly loss, wider than anticipated. Total revenue for the year clocked 7 billion, up 73 percent from the year prior.

The outlook is also an important part for this company. No ..... it is everything with this business. If you are owning a piece of Tesla, you are owning a company that produces fine motor vehicles, in fact, the fastest production motor vehicle. And it happens to run on batteries. If you own Tesla, you are owning a piece of a business that is about to go mainstream, less of a product for the wealthy and environmentally conscious, and now more of a company that will start delivering a more affordable (hardly cheap at 35 thousand Dollars) mainstream vehicle. Coupled with that will be the storage powerwall, and the very exciting shingle roof (the normal looking roof that is a solar panel). So the company is setting their sights on becoming a multi channel, vertically integrated battery technology business.

They expect to deliver up to 50 thousand vehicles (Model S and X) for the first half this year, although meeting those lofty targets is often too hard. Musk and his team are certainly there to change the world, that is their goal. The investment thesis is simple. This is a business that is in massive ramp up mode. They are going to continue to spend like crazy whilst they are growing. That means that from time to time they may turn to their shareholders and other institutional investors. This means that you will be diluted. The market cap is 45 billion Dollars, bigger than Ford who produces a huge number more cars than them, heck, Tesla didn't even make 100 thousand vehicles last year. In January alone in the US, Ford sold 172 thousand vehicles.

That tells you that Mr. Market is expecting huge things from this business, they expect the company to reach their targets of producing half a million Model 3 vehicles. If not, then we may once again be seeing what is a wild stock price get even wilder. This is like a volatile relationship between two passionate on again, off again lovers. The short interest (those who have borrowed the shares in order to sell them short, profiting when the share price goes down) is nearly 35 million shares (out of 155 million in issue). There are lots of people who think Musk is just going to burn cash and be a failure, he has had a history of sailing very close to the wind, avoiding bankruptcy at the last minute a couple of times. He will win. I have conviction about that. The most successful first weekend launch ever (of orders placed for Model 3s) shows you the high demand for what is an amazing product.

Whilst you can almost never justify a business on paper that looks like this, I believe that we are in the early stages of something different in consumer behaviour. You should accumulate a few on weakness, there is always a lot of news about the business and the hyena like shorts (they take their chances like anyone else) that can see weakness in a flash. At that moment, if you really feel like you want a piece of the future, you should swoop. Until then, we are happy holders at the fringes. The stock is possibly going to open about flat from where they started yesterday morning, which means that the market got the pricing spot on. Well done Mr. Market, well done ......