By Charley Blaine
Investing.com - Elon Musk, seemingly, has it all. There’s the money, the colorful personal life and the Bel Air mansion in California. Then there’s Space X and, above all, Tesla (NASDAQ:TSLA).
Tesla, the maker of all-electric cars, has made him fantastically rich and controversial. Tesla turned its first profit in the third quarter of 2018 and posted one again in the fourth quarter. If you had been lucky to buy 1,000 shares of Tesla when it went public at $17 in 2010, it would be worth around $265,000 now, a compound annual return of more than 120% a year.
But the stock is off more than 20% this year after rising about 7% in 2018. It's the in-betweens that are startling and obscure the sheer audacity of helping to found and then build an automobile manufacturing company from scratch.
That 7% stock-price gain in 2018 came after the stock fell 33% in two months after a now-infamous tweet. On Aug. 7, Musk tweeted, "Am considering taking Tesla private at $420. Funding Secured." The stock jumped 11% that day, except that Musk didn't appear to have the funding secured. He later said he thought he did. But the Securities & Exchange Commission took notice and sued.
The result was that Musk had to give up being chairman of Tesla, though he has remained CEO. He also agreed to get any communications approved by a board committee before sending them out. The SEC reads that to include tweets. Musk disagrees and it now appears that Musk has been tweeting about Tesla regularly before showing anyone anything. So, the SEC asked the judge overseeing their case to hold Musk in contempt.
One of the tweets, on Feb. 19, said Tesla's output would be 500,000 units, 25% higher than the company's guidance in January. Within hours, he corrected the number to an annualized rate of 500,000 units with production hitting 10,000 cars a week. Output is one thing. But output also means millions of dollars in revenue.
The issue is bigger than simply following or not following the rules. A very big and real issue for many stockholders is if the SEC will force Musk out of the company - because Tesla is Musk.
If there's no Musk, who runs the show? And what happens to his stock, around 25% of the outstanding shares. That helps explain this reality.
The 29 analysts polled on Tesla by Investing.com have a consensus 12-month price target of $329.28, up 24.5% from Friday's close of $264.53.
But 11 analysts say the stock is a buy, with one seeing the stock hitting $500. Another 11 rate the stock a sell, with one seeing the stock falling to $180. And seven are neutral.
To be sure, Musk is a very bright man. Read the transcripts of Tesla's earnings calls and you can see his command of details and trends and see all the stuff he gets into besides Tesla.
But he has an entrepreneur's impatience of process, especially the process around what one says or doesn't say that can affect a stock price. The late Steve Jobs used to get impatient with SEC rules, too, which generated rounds of regulatory battles.
Musk's impatience and excitement generate volatility, not so good for long-term investors but great for short sellers who jump at the opportunities Musk seems to create.
Take the August 2018 tweet. After Tesla's shares absorbed at 33% haircut, the stock took off, rising 26% in the fourth quarter. And it moved higher in early January because Tesla's fourth-quarter production numbers looked strong.
And then the selling pressure erupted again.
Elon Musk notwithstanding, Tesla is an amazing story. It generated $17 billion in revenue in 2018, up 82% from a year earlier. In the fourth quarter, revenue reached $7.23 billion, up about 120% from a year earlier. Its fourth-quarter non-GAAP earnings of $1.93 a share in earnings were lower than the third quarter's $2.90 a share, but way better than the $3.04 loss in the fourth quarter of 2017.
It generated $1.2 billion in cash from operations in the fourth quarter and free cash flow was positive.
It faces considerable risks. The U.S. economy looks like it may be slowing. The global economy looks worse and Tesla hopes to open a factory in Shanghai this year.
The stock was hit with a 4% loss on Friday when Cowen analyst Jeffrey Osborne cut his estimate of the number of its new Model 3 cars that will be delivered from 55,000 to 47,500 this quarter. The Model 3 is Tesla's key to future growth, with a moderate price.
The $35,000 car that Osborne says is critical to make the numbers work won't be available until later this year. And he's worried about China, where delivery expectations and custom clearance are less transparent.
Osborne, one of the analysts who rate the stock a sell, cut his 12-month target price from $200 to $180.