Yesterday, after the market closed, Tesla (TSLA) reported its Q1 results. The company showed an 87% annual increase in revenue and an Earnings per Share (EPS), before certain items, of $3.22. That is nearly a dollar more than Wall Street’s average estimate of $2.26. In other words, it was a blowout.
And yet, in the weeks leading up to the release, you might have thought that Tesla was having problems. News coverage about the record delivery numbers and price hikes that set up for that great quarter was almost impossible to find. Financial TV and websites were instead full of stories about Elon Musk’s Twitter (TWTR) adventure and speculations that Musk was distracted and losing focus. The implication was that Tesla would suffer, and the stock once again fell below $1,000 as a result, including a big drop yesterday in front of the numbers.
That now looks like a mistake, but it is a mistake that Tesla’s detractors have frequently made in the past.
It is easy to focus on one person at a company when that person is charismatic and controversial, but once a company reaches a critical mass, no one individual defines it. Apple (AAPL) didn’t fall apart after Steve Jobs’s passing, Ford (F) did not fold after Henry T. was gone, and JP Morgan did okay after the man himself was no longer in the picture too. I understand that Tesla is Musk’s baby and that it is his vision that has driven the company to this point. However, forsaking profit in pursuit of growth and what looked like controversial moves in the past, such as massive investment in taking control of their own supply chain by building huge battery factories and localizing production around the world, now look smart. But if you focus only on the controversy and the personality of the man making those decisions, they might appear to be what the haters say they were, a step or two too far, driven by ego rather than logic. And yet, here we are, looking at another blowout quarter.
As someone who owns TSLA and has seen it as a long-term investment for a while, though, I am glad that attitude prevails at times. It gives me and others an occasional chance to add to our positions at a discount.
Elon Musk’s occasional 4/20 jokes or challenges to the SEC are not what matters to investors. What matters, or what should matter, are results such as those reported yesterday. The results clearly showed that Tesla is still expanding rapidly and has such strong branding that even as every car company out there seeks to compete in the EV space, it is able to retain pricing power. Tesla buyers, it seems, want a Tesla and are not inclined to shop around. That is important in an inflationary environment.
In a very different field, Proctor & Gamble (PG) showed that this week too with their great Q1 earnings. Price hikes are possible if consumers perceive value in a brand, so with inflation being a factor again after decades of stable prices, companies with strong brands and the resulting pricing power will have an advantage for years to come. Tesla is one of those companies. Since the end of 2019, it has beaten earnings estimates in ten of eleven quarters, with last night’s 74% beat not being atypical.
So, the next time Elon Musk says or does something controversial and TSLA drops as a result, investors would be best served by focusing their attentions on the numbers, not the noise. The company’s numbers show that it is still growing fast and has a long way to go, and that it is its numbers, not the headlines, that will drive the stock in the future.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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