Trade Alert: Out of the Tesla Earnings Trade

Still bullish on Tesla long term, but I got this one wrong.

One of my informal gauges of Tesla’s success is to see how many of the Tesla chargers are occupied at my local Wawa. On the night I took this last year, they all were.

We Got This One Wrong

In a trade alert yesterday, I mentioned placing a bet on a positive earnings surprise by Tesla Inc. ( TSLA 0.00%↑ ) after the close.

Trade Alert: Tesla's Earnings

I based that on two things mainly:

1. Estimize’s bullish consensus estimates for earnings and revenue.

2. Elon Musk’s decision to hold the earnings call in a Twitter Space.

I was wrong. Estimize’s $0.94 EPS estimate was well above Wall Street’s consensus estimate of $0.85, which was dead-on, and Tesla’s revenues came in a bit lower than Wall Street’s estimate. As a result, Tesla shares dropped after hours, and are down 10% today, and I’ve got a limit order in to exit my call spread at a net credit of $0.01, after paying a net debit of $1.06 for it yesterday. The maximum upside on that call spread for 2 contracts would have been a gain of $788 had Tesla surprised to the upside; instead I’m going to eat the maximum loss of $212, or just about.

I’m still bullish on Tesla for the longer term though.

Why I’m a Long Term Tesla Bull

Two main reasons:

1. It’s succeeding at becoming a mass market car company. The price cuts are part of that, and as the company noted in its earnings presentation, its lower-priced Model Y sedan was the best-performing car in Europe in the first quarter, and the best performing car (excluding pickups ) in the U.S. in Q1 as well.

2. It’s financially strong now. There were years when Tesla needed to raise capital in share offerings to avoid going bust, but that is now in the past, as GPT-4 explains below (I asked it to calculate Tesla’s Piotroski F-Score based on yesterday’s financial statements):

   The Piotroski F-Score is a financial analysis tool used to assess the financial health and strength of a company. It ranges from 0 to 9, with a higher score indicating better financial health. The F-Score is calculated using nine criteria based on a company's financial statements. Using Tesla's most recent financial statements (https://tesla-cdn.thron.com/static/ZXSBN8_TSLA_Q1_2023_Update_ABMJPG.pdf), we can calculate Tesla's Piotroski F-Score as follows:

   1. Positive Net Income: Tesla has a positive net income of $2,173 million in Q1 2023. (+1 point)

   2. Positive Operating Cash Flow: Tesla's operating cash flow is $3,046 million in Q1 2023. (+1 point)

   3. Increasing Return on Assets (ROA): ROA in Q1 2023 is 7.07% and in Q1 2022, it was 5.94%. ROA has increased. (+1 point)

   4. Cash Flow from Operations > Net Income: Tesla's cash flow from operations of $3,046 million is greater than its net income of $2,173 million. (+1 point)

   5. Decreasing Long-term Debt to Assets Ratio: Long-term debt to assets ratio in Q1 2023 is 0.202, while in Q1 2022, it was 0.244. The ratio has decreased. (+1 point)

   6. Increasing Current Ratio: Current ratio in Q1 2023 is 1.40, and in Q1 2022, it was 1.19. The current ratio has increased. (+1 point)

   7. No New Shares Issued: The weighted average shares outstanding are 1,026 million in Q1 2023 and 1,023 million in Q1 2022. Tesla has issued new shares. (0 points)

   8. Increasing Gross Margin: Gross margin in Q1 2023 is 27.9%, and in Q1 2022, it was 21.9%. The gross margin has increased. (+1 point)

   9. Increasing Asset Turnover: Asset turnover in Q1 2023 is 0.51, and in Q1 2022, it was 0.49. Asset turnover has increased. (+1 point)

   After calculating the individual components, Tesla's Piotroski F-Score is 8 out of 9. This indicates strong financial health for the company.

   What Next

   I’ll keep Tesla in mind for a future opportunity to bet on again it at a lower price.