Tesla Back Into The Red – $702 Million Loss In The First Quarter As Demand Drops


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Shares of Tesla (NASDAQ:TSLA) remained flat in after-hours trading this evening after the Palo Alto, CA-based automaker reported dismal first quarter earnings numbers. The company reported losses two or three times that of what most analysts predicted and revenue also missed expectations.

  • Q1 loss per share (adjusted): $2.90 versus 69 cents expected
  • Q1 Revenue: $4.54 billion versus $5.19 billion expected
  • Q1 Cash on hand down to $2.2B from $3.7B in Q4

First quarter sales way down versus fourth quarter

Tesla Model Y Compact SUV

Tesla said earlier this month it delivered 63,000 cars during the quarter, well below analysts’  estimates of 76,000. The $7,500 Federal tax credit that buyers were receiving was cut in half starting Jan 1st, and the company is now seeing the effect of the greatly diminished government EV incentive.

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Compared to the first quarter of 2018, vehicle sales rose by 36 percent, to $3.72B. However compared to the $6.32B in automotive revenue it booked in the previous quarter, a drop of 41 percent to $3.72B is indeed an alarming and dismal signal from Tesla.

The EV-maker reported total revenue of $4.54B, up 33 percent from a year ago mainly thanks to increased Model 3 production and sales. Despite the increase in revenue, Tesla lost about the same - $710M loss in Q12018 and a $704M loss this past quarter.

Tesla was finally able to really ramp its Model 3 production and its numbers from the fourth quarter showed the direct effects of that, profitability and strong revenue growth.

One thing that CEO Elon Musk has been harping on is that the automaker will operate cash-positive and will not need to raise more capital. Well today that story has officially changed. The company's cash reserves have dwindled, in part due to some large debt payments, from $3.7B to $2.2B. Musk actually admitted today that there is "merit" to the idea of the automaker raising further capital at some point in the near future.

Can Elon Musk steer Tesla to long term profitability?

Elon Musk poses with Model S

When it comes to the world's largest electric car company, everything begins and ends with Mr. Elon Musk, the company's founder and oft-criticized, brilliant CEO. Musk discussed some potential pivots the company can maneuver into that will help bring about long term profits.

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The company plans to activate a million fully autonomous self-driving vehicles that will serve as "robo taxis" by 2020. These will be revenue generating and Elon believes that the long term value of a Model 3 is somewhere north of $200,000 based on its lifetime potential to earn revenue by ferrying passengers around.

If Tesla does indeed roll out a direct to customer platform, this could be hugely disruptive. We've seen Lyft (NASDAQ:LYFT) go public recently with a valuation of over $30B at IPO, and its larger rival Uber enter the fray soon seeking a valuation of $100B or more. The automaker definitely has the technology to compete against Lyft/Uber and who's to say that Tesla can't muscle into this market? Tesla has the brand equity rivaling that of almost any luxury brand, and is a household name at this point. If its platform is released in a mature state, and its prices are competitive, why wouldn't riders opt to take a super futuristic robotic Tesla to their destination?

Tesla's CEO even detailed a novel insurance offering that the company plans to offer its customers. Musk said, "It will be much more compelling than anything else out there."

Of course we also can look forward to the next round of new models; The Model Y Compact SUV is due to launch as well as an all-electric semi-truck by 2020.

Such a steep fall off in sales sequentially is troubling for a company facing mounting concerns about both its long term demand and profitability. Many have been calling Tesla overvalued for quite a while and now, given another quarter with a big loss, means Tesla is trading at an even higher price to earnings. Tesla is simply struggling to succeed as an automotive company. Where Elon Musk and his company's salvation lies will be in its ability to leverage its IP into things like its self-driving taxi fleet and of course its competencies in battery tech.

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