Thursday, July 25, 2019

Tesla and Nokia: opposite reports

Tesla and Nokia reported Q2 results last night and minutes ago in the morning, respectively. It's amazing how these companies are similar in size – but opposite in their credibility and profitability.

In Q1 2019, Tesla reported a huge $700 million loss. Investors almost started to behave rationally and the Tesla stock price slided down to $179 or so on June 3rd. However, at that time, the data were far and the bulls started to pile up the price again. With hindsight, it looks unavoidable to me. And they added some 50% from the lows.

So yesterday before the results, Tesla closed at $265. The loss per loss was expected as $0.40 – almost break even – but it came out as $2.30. So Tesla is losing 11% after-hours, down to $235.



It was a quarter with record deliveries of nearly 100,000 cars. Nevertheless, Tesla made a stunning loss of $400 million. Just divide these numbers. When the loss is divided among the cars that are sold, the most important things that Tesla offers, you get some $4,000 loss per car.

In the U.S., this number will deteriorate by further $2,000 because the EV subsidy got halved again to below $2k from below $4k on July 1st. But just try to appreciate how huge the $4,000 loss per car is. Tesla is really delivering cars at a 10% "loss margin". It is comparable to the profit margin of the healthiest carmakers in the world. Except for the sign that is wrong.



Just as an afterthought, at the end of the conference call, Tesla announced the departure of Mr Straubel, the CTO. He was there before Musk. He basically brought Musk. He may have been the key in designing the cars. Nevertheless, no one knows the name of Straubel and no one seems to care.

Tesla has avoided the bankruptcy by selling the cars at discounted prices that were guaranteed to lead to a huge loss. You can surely estimate the profits or losses with the precision of 10% of the revenue. This is clearly a strategy that has no future. If Tesla tried to sell the cars at prices that would create profits, the inventories would grow and it would already have been bankrupt. Instead, the company is trying to extend its life – with the full knowledge that the future is gonna be worse and worse. And many people still support this behavior.

Now, Nokia reported some €0.05 non-IFRS diluted earnings per share in Q2, some 35% higher than a year ago – and beating some €0.01 consensus and earning whispers estimates. That's €451 million in operating profit – more than the Tesla loss. Clearly, the profit is healthy and the tiny loss in Q1 may be temporarily forgotten. The stock is growing 5% in the morning.

Along with Ericsson, Nokia is actually delivering the 5G network gadgets. 4G mobile data will get 100 times faster and the latency will drop to a millisecond. It's amazing, will enable many applications that were prevented by low speeds and high latency, and it seems that Huawei of China is technologically ahead of the Western companies. This is a clear example of a situation in which China isn't just following, copying, and stealing intellectual property – at least in this case, China is leading.

So far, Ericsson and Nokia have a chance to compete and perhaps beat Huawei in various markets and disciplines. But it's hard and the the technological progress is exciting and nontrivial. The odds of a massive growth of Nokia due to 5G is much more realistic than the prospects of a Tesla growth. Nevertheless, the company Tesla is worth more than Nokia – $45 vs $35 billion after yesterday's close. It may change in a day or several days but it was true today.

Clearly, it's Tesla where the market is failing because it's filled with lots of stupid bigots who aren't actually evaluating the stocks and they're not actually seeking profit based on the proper evaluation and bets on undervalued things. They are pushing the stock price in a direction. They're bigots, activists, pests, anti-market tumors, and there are lots of them. Tesla is a rare company whose valuation is this massively unrealistic. Nevertheless, the Tesla cult looks like a part of something that is gradually devouring the whole Western society. A cult of ideologically driven activism where the morally acceptable judgments must always go in one direction (Tesla price goes up, for example), where numbers, merit, and objective justice don't matter, where marketing, brainwashing, and narcissism always trumps the things that used to matter when the civilization was flourishing.

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