Investors Bet Big on Tesla's Model 3
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal.
Welcome, I'm Tanya Bustos, reporting from the newsroom in New York City. Upon the launch of Tesla's long-awaited Model 3 car, heard on the streets Charlie Grant and Spencer Jacob join MoneyBeat's Paul Vigna and Steve Grosser to talk what investors are betting on and Tesla's prospects for success in the mainstream market.
With the Model S, Tesla became the environmentally conscious status symbol of the rich and wealthy and well-to-do in Silicon Valley. Now, with the Model 3 about to be unveiled, Tesla hopes to become the environmentally conscious status symbol of everyone from Silicon Valley to Passaic Valley. Welcome to Money Beat. I'm Paul Vigna.
I'm Steve Grosser.
What is the Model 3 launch and why does it matter for Tesla's strategy?
Are you going to buy one, Paul? No, I'm not going to buy one. Because you are the definition of every man.
I am the definition of every man. I'm also the definition of an every man who already has a car payment, so I will not be buying another one. It has nothing to do with a car. It has to do with what I can afford. We are joined today by Heard on the Street writers Spencer Jacob and Charlie Grant. So I guess, Charlie, let's let you lead this one off. Tesla, Model 3, they've been talking about this thing for a long time. Why does it matter?
Well, this is what the company has bet itself on and what investors are betting on. Tesla has long been successful in making luxury cars for a small segment of the population. This is their big chance to really break in and compete with the majors. And the stock, investors can't get enough of the stock.
How are investors pricing Tesla ahead of the Model 3 unveiling?
And a lot of it depends on what they show and what they are able to actually roll out and deliver to customers in the coming year.
How much – can you talk to me about what investors are actually expecting with Tesla? Because the stock largely for years now has just gone up. Why?
It beats me. I've been bearish on this stock, and doubters like me have been proven wrong time after time after time. But there's a lot of hope that Tesla can deliver a great product at a profit. The auto industry is known for very thin profit margins. A lot of things can go wrong. You need technical precision that Tesla has not yet demonstrated.
What risks do skeptics cite about Tesla achieving auto-industry profitability?
But investors are willing to put the cart before the horse in 2017. Yeah.
I was going to say, it's the bear's lament, right? I mean, the hot stock can make you look silly. But Charlie is too modest to say it. But I mean, he's been right about everything except the share price. I mean, he's been cautious. And if you look at the expectations for any kind of positive free cash flow or earnings or whatever from Tesla, it keeps getting pushed farther and farther and farther away. So- He's been absolutely correct about that and the need to keep going back to the well to investors for money. He's been spot on. It's just that the investors assign such an extremely high valuation to the company and they keep believing in it. But this is an important moment, right? This is when the rubber hits the road, literally and figuratively.
So, I mean, investors are essentially ignoring a lot in the hopes that at some point down the road, Tesla will start generating huge profits, right?
How have analyst earnings estimates for Tesla changed after Model 3 news?
Absolutely. And that moment keeps getting pushed back. I have some stats here from you. This is what analysts expect in earnings now and what they expected a year ago. So for this year, these are adjusted non-GAAP numbers. Analysts expect a loss of $6.12 a share. A year ago at this time, they were expecting a $2.33 a share profit. 2018, they're expecting a small loss, $0.88. But a year ago, they were expecting $6.11 a share in profit. Even 2019, they're still expecting the money to start rolling in then, but they expected $12.38 a share a year ago, and now $5. So that's interesting. And the stock's gone straight up as these estimates keep going slash.
I wonder why the estimates are getting – I mean we knew a year ago they were working on this Model 3, right?
Yes.
I mean it's not – I would think the estimates would be going in the other direction.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:02–0:59
2
What is the Model 3 launch and why does it matter for Tesla's strategy?
0:59–1:47
3
How are investors pricing Tesla ahead of the Model 3 unveiling?
1:47–2:30
4
What risks do skeptics cite about Tesla achieving auto-industry profitability?
2:30–3:31
5
How have analyst earnings estimates for Tesla changed after Model 3 news?
3:31–4:47
6
Why did Tesla's acquisition of SolarCity affect investor expectations?
4:47–5:52
7
How might Model 3 production updates drive stock volatility in 2017–2018?
5:52–6:25
8
What should listeners watch next after the Model 3 unveiling?
6:25–6:47
Speakers
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