Hello Everybody! Welcome to another edition of Lemonade Stand Finance.

Today we are talking about Tesla.

Looks like Tesla's hitting a bit of a rough patch in early 2024, and we might even see their sales dip for the first time since 2020. Talk about a surprise twist, even the experts didn't see this coming! There's a lot to unpack here – from why this is happening to what it could mean for Tesla down the road.

This story is a real-life lesson in how the stock market reacts to a company’s ups and downs.

Our 3 minute case study is based off the Wall Street Journal article titled: “Tesla’s Terrible Quarter Catches Some Analysts Asleep at the Wheel”

Let’s get into it!

Case Study

Summary:

• Tesla’s first quarter of 2024 has been rougher than expected.

• Early indicators suggest that the company might not even reach the 422,875 deliveries it achieved in the same period last year.

• This could be Tesla's first drop in year-over-year sales since the pandemic lockdowns, a significant event given the company's history of consistent growth.

• Data from the U.S. and China, Tesla's two largest markets, indicate a decrease in deliveries compared to last year.

• In Europe, although there’s been an increase in sales, it’s not enough to counterbalance the declines elsewhere.

• The reasons seem to be a mix of reduced demand and production challenges, including a major update to the Model 3 line and an unfortunate incident at Tesla's Berlin factory.

• Analysts are adjusting their forecasts, but there's still a notable gap between their consensus and the actual investor expectations.

• This mismatch suggests that the official earnings estimates might be overly optimistic, possibly making Tesla's stock appear more expensive than it is.

Insight Breakdown:

1. Sales Drop: Tesla is facing a potential decrease in its car deliveries. This is a big deal because it's the first time in years that Tesla might sell fewer cars than it did in the same period the year before.

2. Production and Demand Issues: Tesla's challenges are not just about people wanting fewer cars. They also had to slow down car making because of updates to their factories and other unexpected events.

3. Analysts vs. Investors: Financial experts who predict Tesla's performance have been changing their forecasts. But what's interesting is that investors – the people actually buying and selling Tesla's stock – seem to have different expectations.

4. The Big Picture for Tesla: It's not just about how many cars Tesla sells. People are also watching Tesla's new technology, like their automated driving software. Sales matter because more cars sold means more people might buy Tesla's digital services in the future.

5. Impact on Tesla's Stock: With all this happening, Tesla’s stock price has been affected. It's down by a notable percentage, and this situation might show that Tesla's stock could be pricier than many people think.

6. Stock Value and Business Performance: The value of a stock, like Tesla's, is directly tied to how well the business is doing. If the company performs well, makes a profit, and has good prospects for the future, its stock value usually goes up. On the other hand, if the company faces problems, like slowing sales or production issues, its stock value might go down. This is because investors are constantly assessing the company's current performance and future potential, and they adjust their willingness to buy or sell the stock based on this assessment.

Simplifying Jargon:

• Analyst Consensus: The average prediction that financial experts make about a company’s performance.

• Earnings Estimate: An expert's prediction of how much profit a company will make.

• Forward Earnings Multiple: A way to measure how expensive a company’s stock is compared to the profits it's expected to make.

• Investor Sentiment: The overall attitude of investors towards a particular stock or the stock market in general, which can affect stock prices.

• Market Value: The total value of a company's shares of stock. It's calculated by multiplying the current stock price by the total number of shares outstanding.

• Quantitative Easing: A monetary policy used by central banks to increase the money supply by buying government securities or other securities. This policy can affect investment decisions in the stock market.

Quote of the Day

“Price is what you pay, value is what you get” - Warren Buffett

That’s it for today. Thank’s for taking the time to learn with me!

We will be back on Monday. Wishing everybody a Happy Easter!