Has Wall Street Overreacted on Tesla?

When it comes to high-flying tech stocks like Tesla Motors Inc. (NASDAQ: TSLA), the market is a fickle master, sending prices to stratospheric levels, only to have them come crashing to earth with no rhyme or reason. Monday was a case in point for Elon Musk’s electric car company.

The stock got hammered after reporting fourth-quarter deliveries of 17,400 vehicles. As media reports noted, that was on the “low end” of its previously issued guidance of 17,000 to 19,000. Never mind that it represented a 50% increase from the year-earlier period, it wasn’t the blowout performance that Wall Street expects from companies like Tesla, shares of which have surged more than 500% over the past three years. Though some will argue that’s how the expectations game is played on Wall Street, oftentimes the line between Wall Street “stud” and “dud” is a blurry one.

For instance, what would have happen if Tesla reported 18,000 deliveries, the midpoint of its forecast, or at the high end of 19,000? Shares of the Palo Alto, Calif.-based company probably would have still tumbled because Tesla failed to “beat its numbers.” The stock probably would have still dropped with a 20,000-delivery report because it didn’t blow away expectations by a big enough number.

Tesla also got hammered for taking a “cautious approach” to the roll-out of its new Model X sedan in light of recent quality problems with its older Model S that were highlighted by Consumer Reports. It made 507 Model Xs during the fourth quarter but delivered only 208 of them, a “go slow approach” that is understandable in light of those issues.
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“Model X deliveries are in line with the very early stages of our Model X production ramp as we prioritize quality above all else,” according to a press release. “That ramp has been increasing exponentially, with the daily production rate in the last week of the year tracking to production of 238 Model X vehicles per week.”

Now imagine what would have happened if Tesla had announced a huge ramp-up in Model X production. Wall Street analysts would have slammed the company for not addressing its quality control problems. In other words, Tesla is caught in a damned-if-you-do and damned-if-you-don’t scenario. That’s why the time is right for adventurous investors to buy Tesla shares before Wall Street realizes that it overreacted to this week’s news.