Tesla 1Q production update

Sometimes the market creates self-fulfilling prophecies. Sometimes these work and sometimes they don't. More often than not, they don't work. You see, the market provides access to capital. A company's share price (size) is a big determinant of how much capital you get to access, especially if you are issuing equity. The higher your share price, the more capital you can access, the more acquisitions you can make, the faster you can grow, the higher your share price goes etc.

The success of this model relies on the story you are selling. Does the market believe you can execute the story? And if the story pans out, will there be huge rewards at the end? Amazon managed to sell their story incredibly well but it was a long haul. It has taken Amazon well over two decades to get to this scale. Many believers looked very naive during tough periods.

This brings me to Tesla. The market likes the story and that gives the company access to the capital it needs to make the story a reality. So when the share price plunges 30%, like it has in recent weeks, not only does Tesla's ability to raise funds through the market decline, even the bond market starts shaking. Tesla's thirst for capital will not diminish, but its access may.

That is why the Tesla story is so crucial. The fundamentals do not add up in terms of profits, cars produced and market cap. But if Tesla maintains it's access to capital, it can succeed and become massive.

What is crucial to the story being sold to the market is vehicle production. Yesterday Tesla announced their Q1 production numbers. For the quarter 34 494 were produced, up 40% from Q4 last year. This included 9766 Model 3 vehicles and 24 728 Model S and Model X vehicles.

What is key here is how this lines up with company projections (the story being sold to the market). In February, Tesla stated that they wanted to produce 2 500 Model 3 vehicles per week by the end of Q1. Did this happen? No. Tesla produced 2 020 Model 3 vehicles in the last week.

But the story is still being sold. By the end of Q2 they expect to make 5 000 Model 3 vehicles a week. They feel they are still on track to achieve this.

The market liked what it saw, and the share price shot up 6%. Elon is sleeping at the factory again (another great story enhancer) and the Tesla saga goes on.

This will continue to be a wild ride and I have no doubt that there will be many more ups and downs for this business. The key is that ups are more frequent and the market continues to believe. The outcome almost seems binary from here, the way Elon likes it. All or nothing.