Tesla Q3 Deliveries Update & My Latest Stock Purchase
Hey everyone, welcome back to my website. Tesla released its latest delivery figures yesterday. Were they good? Were they bad? Today, we'll take a quick look. Secondly, I added to my position in a company yesterday. How many shares did I buy? Just one. So today, I'll also be sharing with you which company I bought.
Tesla Q3 Deliveries: A Look at the Numbers
Tesla's stock price dropped 3.5% during trading yesterday, and the decline seems to be continuing pre-market today. Why?
Let's take a look at Seeking Alpha. The headline reads, "Tesla Dips After Slight Miss With Its Q3 Deliveries Report."
The Q3 delivery report is out, and the results slightly missed market expectations. So, the drop is understandable. Recently, there's been a lot of positive sentiment, with many saying Tesla's performance in China seems strong, and Q3 could potentially salvage the first half of the year. This sentiment applied not just to Tesla, but also to other companies like BYD. The market grew increasingly bullish on Tesla beating its delivery forecast for the third quarter. However, they fell short.
So, what were the actual results? Let's take a look.
These are the figures released yesterday. As you can see, Q3 deliveries reached 462,890. The market initially expected around 463,000, but keep in mind that this figure had already been revised downwards. So, Tesla failed to meet even the lowered guidance, leading to the 3% drop in stock price.
I've said it before, and I'll say it again: fixating on "missed forecasts" or "beat forecasts" feels a bit...well, not very intelligent. While I might not be the sharpest tool in the shed to begin with, these terms make it seem even worse. In the grand scheme of long-term investing, these short-term fluctuations are inconsequential. So what if they missed or beat the forecast?
What matters is understanding what these numbers mean in context. Let's compare them to the same period last year and the previous quarter.
Last quarter's deliveries were 443,956, meaning this quarter's figures are actually better. Now, let's look at the same period last year: 435,059. Compared to this quarter's 462,890, it's clear that this quarter performed better. The growth rate, as we've calculated, is roughly 6.5%. So, year-over-year, deliveries grew by 6.5%.
While that might not sound impressive, let's consider Tesla's Q2 earnings report. Their automotive revenue actually declined by 7% year-over-year in the previous quarter. Deliveries also declined by 5% year-over-year.
Think about it this way: if deliveries decline year-over-year, revenue will likely follow suit. Conversely, if deliveries increase, there's potential for revenue growth, even with slight price adjustments. You can't just make a direct comparison.
The key takeaway is that last quarter showed a year-over-year decline in deliveries, while this quarter reveals a year-over-year increase. This suggests that the current situation is significantly better than last quarter.
Another point often overlooked, but likely not after last quarter, is that this report also unveils Tesla's energy deployment figures. This quarter saw 6.9 GWh of energy deployment. If you recall, last quarter was a record high of 9.4 GWh, surpassing previous figures by a significant margin. Seeing 6.9 GWh this quarter, some might assume a decline.
However, let's look closer. 6.9 GWh still represents the second-highest deployment figure to date. I forgot to mention earlier that the 462,890 deliveries also didn't set a new record, which is somewhere around 480,000. The key takeaway here is that despite neither deliveries nor energy deployment reaching record highs, this quarter's deployment still achieved the second-highest figure ever.
Importantly, Tesla's management already addressed this in their previous earnings call. They cautioned against overreacting to the 9.4 GWh figure, emphasizing that energy deployment's long-term growth trajectory remains intact. They couldn't guarantee consistent quarter-over-quarter growth, implying that this quarter might see a lower deployment figure.
This preemptive message seems to have worked, as the lower figure this quarter was anticipated. The energy business is moving in the right direction, particularly evident in Tesla Energy's official X account, which recently announced a significant milestone: 750,000 Powerwalls installed globally. This marks a crucial achievement for Tesla's two flagship energy products: Powerwall for residential use and Megapack for commercial-scale solar energy systems. Reaching 750,000 installations underscores the positive momentum in their energy business, potentially mitigating concerns about the lower deployment figure compared to last quarter.
Overall, this report doesn't spell disaster. While some might focus on the negatives, I prefer to analyze Tesla's performance against traditional automakers like GM and Ford, who also release delivery figures. Comparing Tesla's growth to their performance provides a clearer picture of their respective positions within the industry. Due to time constraints, I won't delve into that comparison in this video.
The Upcoming Robot Event and My Mercado Libre Purchase
Now, for what you've all been waiting for – the upcoming Robot Taxi event on October 10th. Many are eager to capitalize on potential market movements surrounding this event.
The rationale? Historically, Tesla's stock price tends to dip around major announcements like earnings calls or shareholder meetings. Looking at the past 9-10 instances of such events, Tesla's stock predominantly closed lower, with declines outweighing gains by a significant margin.
This pattern has led many to believe that the upcoming RoboTaxi event on October 10th, just eight days away, could trigger a similar dip. The strategy? Buy shares now and sell before the event, then buy back after the anticipated dip.
For traders, this strategy could be profitable if risks are managed effectively and stop-loss orders are in place. However, from a long-term value investing perspective, this approach is not ideal.
Basing your investment thesis on historical patterns and speculating on price movements around events contradicts the principles of value investing. If you believe in Tesla's long-term potential and consider it a worthwhile investment, predicting short-term price swings shouldn't factor into your decision-making.
While options can be used to hedge against potential losses, selling your entire Tesla position based solely on this strategy is not advisable. What if it doesn't play out as expected?
If Tesla constitutes a significant portion of your portfolio and you want to reduce your exposure, that's perfectly fine. However, selling solely due to the upcoming event and repurchasing after a potential dip is not a strategy I endorse.
Even if it works this time, what about the next? One loss could erase your gains, leaving you unable to buy back into a potentially undervalued opportunity.
Therefore, while I won't tell you what to do, I personally wouldn't adopt this strategy.
Let's shift gears to my recent purchase. I mentioned earlier that I added to my position in a company yesterday. That company is Mercado Libre, which experienced a 5% drop yesterday. It was too good of an opportunity to pass up, and I added one share to my holdings.
I've mentioned Mercado Libre previously as a company whose stock price remains undervalued. While 2,000 dollars per share might seem steep, remember that value investing isn't solely about the share price. It's about the underlying fundamentals.
Looking at a discounted cash flow (DCF) analysis, it's almost impossible to arrive at a fair value lower than the current market price. This is primarily due to Mercado Libre's exceptionally high free cash flow margin.
For those unfamiliar, Mercado Libre is essentially the Amazon of South America. However, there's one crucial difference: their margins. While Amazon operates with margins around 8-9%, Mercado Libre boasts margins exceeding 30%. This discrepancy is unsustainable in the long run.
In my conservative DCF model, I gradually decreased their margin over ten years to a still-impressive 2-3%. This begs the question: why are their margins so high compared to Amazon, especially considering both are e-commerce giants?
The answer lies in a unique aspect of Mercado Libre's business. While both companies have significant capital expenditures, the key differentiator is Mercado Libre's financial services arm.
Mercado Libre has successfully established itself as a major player in fintech, operating with a banking license in Mexico. This banking aspect contributes to its higher margins compared to Amazon, which lacks a similar financial services segment.
Therefore, directly comparing Mercado Libre's margins to Amazon's wouldn't be accurate. While 30% might be excessive in the long run, their banking business justifies higher margins than Amazon's 8%.
However, determining the appropriate margin level requires further analysis. Feel free to experiment with my provided model and adjust the margins as you see fit.
Beyond DCF, relative valuation methods also indicate that Mercado Libre is undervalued at its current price. For instance, their price-to-sales ratio, a crucial metric for e-commerce companies, is currently at its lowest point, suggesting potential undervaluation. This holds regardless of specific accounting entries or their banking operations.
Similarly, their price-to-cash flow ratio is also at a low point. However, it's worth noting that their cash flow might be inflated due to their banking activities. Nevertheless, being at the bottom of its historical range still suggests undervaluation.
Examining other metrics like price-to-book value and price-to-earnings ratio, we see a similar trend – both hover near their three-year lows, indicating potential undervaluation.
Considering their rapid revenue growth exceeding 30%, with projections for 20%+ growth over the next three to five years, Mercado Libre's future appears bright.
In conclusion, I firmly believe that Mercado Libre is undervalued at its current price below 2,000 dollars, which is why I added to my position yesterday.
Remember, this is not financial advice, and you should always conduct your own research before making any investment decisions. No one can tell you what to buy or how many shares to purchase. Investing is a personal journey, and the decision ultimately rests with you.