Getting Tesla Wrong

Tickers in this article: GM TSLA
NEW YORK ( TheStreet) -- Leading up to Tesla's (TSLA) quarterly report, I was under the impression that the consensus was overwhelmingly bearish. Short interest was high, and there is no shortage of opinionated articles proclaiming electric cars to be terrible, dead and uninvestable.

With this type of background, a mediocre quarterly report would be enough for a stock to trade up, in a neutral market. Yet, it got smacked 8.77% yesterday. What gives?

My question implies that I think it was, on the margin, incrementally speaking, a positive quarterly report. Here is why I think so:

The fear going into the quarter had primarily been around the bottom line outlook for 2013, and whether Tesla would have to launch another follow-on equity offering in order to fund the heavy working capital requirements. This did not happen. Yes, I'm looking at you, John Petersen. He has repeatedly published predictions that Tesla is just now running out of cash, and must raise new equity immediately.

Instead, the single fact from the Tesla report that distills the entire incremental verdict is this: Tesla will be profitable this quarter (1Q13), three quarters ahead of the previous plan (4Q13). Everything else from the quarterly report was noise.

That said, let's dig into a couple of tidbits from the noise:

1. Word Of Mouth Sales

To understand why Tesla is succeeding in the market, you have to understand how lyric its customers are. In the big scheme of things, Tesla has essentially no marketing presence -- very few people on Earth have been to one of the few Tesla stores, and Tesla does not advertise.

What Tesla has found is that most of its new sales are now some form of referral sales. Basically, the people who got their Teslas already can't stop talking about them with their friends, neighbors, relatives and co-workers. They won't give up until they have sold a few of them.

As a result, Tesla adoption is occurring disproportionately in clusters now. This is particularly evident in Tesla's Silicon Valley home market. Today, as I have been every day in the recent weeks, I saw more Teslas than I could bother counting, and I wasn't even out a lot.

The word "sustainable" is being thrown around a lot, and I usually react against it with acute nausea. However, I will argue that there is nothing as sustainable for Tesla as passionate owners who sell the car for you. THAT'S sustainability!

2. Battery size mix

Tesla said that less than 10% of orders are for the smallest battery, the 40 kWh. It also said that more than 50% of orders are for the largest battery, the 85 kWh. Somewhere in-between are sales for the 60 kWh battery.