Autos

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Wall Street threw in the towel on Tesla Motors this week. Sort of, anyway.

Analysts' consensus forecast for Tesla's earnings per share in 2016 finally slipped into the red this week. A few cuts in the wake of Wednesday's second-quarter results took the estimate from a profit of about 23 cents to a loss of about 65 cents, according to forecasts compiled by Bloomberg. Go back 18 months, and the consensus was $5.49.

If history is any guide, the cuts haven't gone far enough yet.

The Tenacity of Hope
Forecasts for Tesla's annual earnings per share have tended to start the year way too high
Source: Bloomberg

Despite this history of markdowns, forecasts have still tended to be too generous: Tesla has missed estimates in five of the past six annual earnings reports:

Off Target
While forecasts have been marked down, Tesla's annual earnings have still mostly missed
Source: Bloomberg

As you can see, those Excel models were especially malfunctioning over the past couple of years. Where analysts were really caught out was the rapid acceleration in Tesla's spending to boost production of the Model S and launch new ventures such as the Model X and the Gigafactory battery facility.

A turning point of sorts was reached in February 2015, when Tesla reported that first huge miss in annual earnings and CEO Elon Musk declared on the call that Tesla was "going to spend staggering amounts of money on capex."

Stalled
Analysts' forecasts for Tesla's earnings stopped climbing around the start of 2015
Source: Bloomberg
Note: Rolling consensus EPS forecast for the following year.

The thing is, even as analysts were gutting their profit forecasts, their target valuations for Tesla stayed high -- and so did the stock.

Fork In The Road
Tesla's stock and analysts' target prices disconnected fully from forecasts in early 2015
Source: Bloomberg

And so we end up here in the summer of 2016. Forecasts continue to fall, and Tesla continues to miss them, largely because the "staggering" spending habit has become the norm as the company's ambition has expanded rapidly. Indeed, with expectations of near-term profits gone, the narrow foundation on which the long-term projections justifying those gravity-defying target prices rest has shrunk to Tesla's ambition alone. The Excel models are still working in a way -- you just have to keep scrolling further to the right to get to the positive numbers.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net