Tesla Profits Plunge 37% Despite Record Sales — Here’s Why | Prof G Markets

Episode Overview

• A recap of the previous day's market vitals, highlighting declines in major indices, gold, Netflix, and semiconductor stocks due to persistent trade tensions.
• An in-depth analysis of Tesla's mixed Q3 earnings report with Wall Street Journal columnist Tim Higgins, focusing on the disparity between rising revenue and falling net income.
• A discussion on the Beyond Meat "meme stock" phenomenon with Sherwood News editor Luke Kawa, exploring its origins, lifecycle, and institutionalization in the market.

Key Concepts

• Market Vitals: The episode begins with a market summary, noting that the S&P 500, Nasdaq, and Dow all declined due to concerns over potential US software export restrictions to China. Gold, Netflix, and semiconductor stocks also saw losses.
• Tesla's Q3 Earnings: Tesla reported mixed Q3 results. While revenue (+12%) and deliveries (+7%) saw year-over-year growth, net income plummeted by 37%, largely due to EV price cuts. The stock fell over 4% in after-hours trading. The discussion highlights the "pull-forward" effect of expiring tax credits and concerns about future growth without new models.
• Meme Stock Phenomenon: Beyond Meat's stock surged over 600% during the week, becoming the latest meme stock. The frenzy was sparked by a debt-for-equity swap that significantly diluted shares but was framed positively on online forums. The lifecycle of meme stocks is explored, from their origins in beaten-down stocks with high short interest to their eventual decline when they must prove fundamental value.

Quotes

• At 00:09 - "The Japanese call it 'benjo meshi' or 'toilet meal.' Economists have their own term, they are calling it 'vertical integration.'" - The host opens the show with a humorous and bizarre statistic to introduce the concept of vertical integration in an unexpected way.
• At 02:11 - "A big surprising number though was how much profitability fell off. Profit fell something like 37% in the third quarter, not as good as Wall Street was hoping for." - Tim Higgins identifies the key concern from Tesla's earnings report, emphasizing the significant drop in profitability despite revenue growth.
• At 14:38 - "It's a lot easier to be a meme stock if you have effectively crashed, if this is your second chance." - Luke Kawa explains a key prerequisite for a company becoming a meme stock: it often starts with a stock that has already hit a low point, creating a narrative of a potential comeback.

Takeaways

• Tesla's impressive revenue and delivery growth is being challenged by shrinking profitability due to strategic price cuts, raising questions about its long-term financial health.
• Major market indices can be sensitive to geopolitical news, as seen with the decline following reports of potential software export restrictions on China.
• The meme stock phenomenon is becoming a regular, institutionalized part of the market, where online narratives can drive extreme, short-term volatility in stocks that are often fundamentally struggling.
• Despite the initial anti-establishment sentiment, meme stock movements are now closely tracked and even capitalized on by institutional players like hedge funds and ETF providers.