Tesla's Punishment Is No Accident

NEW YORK (TheStreet) -- The world of financial writing can be a lonely place, especially when you're wrong.

I don't enjoy it when people lose their shirts trading, and I take a lot of pride in knowing that I did my best to mitigate the damage.

And this brings us to Tesla Motors (TSLA). On two occasions I have advised investors to look both ways before buying the stock. It was clear that, despite what the technicals might have said, the fundamentals are what's in the drivers seat. On Wednesday, the fundamentals took a wrong turn.

After the close Wednesday, Tesla reported first-quarter results that missed on both revenue and profits. The electric car maker reversed a year-ago profit of 10 cents to an operating loss of $49.8 million, or 40 cents per share.

Management attributed the loss to costs associated with the company accelerating the development of its new crossover. Analysts, meanwhile, were looking for an 8-cent profit. Equally disappointing was the revenue. Despite the 10% year-over-year jump, it still missed the mark by more than 9%.

On the bright side, the company said it produced 7,535 Model S sedans during the quarter, a company record. Also encouraging: 86% of the vehicles were delivered to customers. But this was not enough to appease investors -- many of whom were spooked by Tesla's rising costs.

Some notable expenses were in the areas of research and development , which surged 49% year over year to $81.5 million. And this goes back to what I've said about how Tesla seems to be in "no man's land."

Should Tesla be viewed as a tech company in realm of Amazon (AMZN), which is also incurring higher expenses? Or are we to assess Tesla by the standards of General Motors (GM) and Ford (F), which have never had such a significant jump in R&D from one year to the next?

Tesla has big ambitions, including the $5 billion Gigafactory facility announced in February, which will produce lithium-ion batteries. Next year management will launch the Model X crossover and wants to adapt the Model S for a growing number of international markets.

There are also goals for the United Kingdom, where Tesla plans to launch a right-hand-drive Model S in June. The company wants to do the same for Hong Kong later this summer.

Investors cheered these aggressive goals when they were announced over the past year. Tesla's growth capabilities explain why the stock became one of the best momentum stories on the market. But aggressive goals aren't cheap.

It wasn't all about spending, however. Recall, Tesla also had to deal with Model S battery fires, which prompted a government investigation. As it stands, Tesla also incurred costs to install additional safety equipment on its new and existing cars.

To that end, I don't believe Tesla's earnings results were as surprising as some investors are making them out to be. The company telegraphed these numbers several quarters ago.

The good news is that, while reiterating its plan to sell more than 35,000 cars this year, the company said it expects to deliver 7,500 Model S sedans in the second quarter. All while expecting production to increase 13% to 19%.

Tesla will continue to be a polarizing story. Shares closed Wednesday at $201.35. The stock was down close to 8% in after-hours trade to around $186. The stock was at $189.61 as of 10:40 a.m. Thursday.

This has all of the makings of an overreaction. But with negative momentum on its side, it's best to wait until the dust settles.

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At the time of publication, the author held no position in any of the stocks mentioned.


This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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