Elon Musk envisions a glorious future when fleets of Tesla robo-taxis earn money for Tesla owners and make all other automobiles instantly obsolete. The future, he said in a presentation this week, starts next year.
So far this year, however, Tesla’s financial situation looks bleak.
The company reported Wednesday that automotive revenue in the first quarter fell 41%, to $3.7 billion from $6.3 billion in the previous quarter, a far deeper drop than expected for sales for all its electric-car models — the Model S, the Model X and the Model 3.
The sales slump in turn slammed the company’s bottom line. The company turned unprofitable again after two rare quarters of positive earnings. The net loss was $702 million, after a $139 million profit in the previous quarter.
Scarce cash got even scarcer. Cash on hand dropped from $3.69 billion at the end of last quarter to $2.2 billion. Operating cash flow turned negative — a net $640 million going out the door over the three months versus a positive $1.23 billion in the previous period.
Tesla shares, down about 22% for the year through Wednesday’s close, were up about 1% in after-hours trading Wednesday, to about $262 a share.
The quarterly results buck up against Musk’s goals and predictions. Last fall he told analysts he had “aspirations” that Tesla would post positive net income and cash flow “for all quarters going forward.”
As recently as January, with the decline in Tesla sales underway, Musk told analysts he was “optimistic” about a first-quarter profit. “Not by a lot, but I’m optimistic about being profitable in Q1 and for all quarters going forward,” he said then.
Until recently, many on Wall Street had predicted a great future for the Model 3. According to Musk forecasts, the company should have been selling 500,000 a year by the end of 2018, instead of the 146,000 it reported.
Production problems led to service problems and delivery problems. Now the company appears to be facing a demand problem.
The Model 3 costs far more than the $35,000 base car that Musk had promised and only recently put on the market. The average price of a Model 3 remains more than $50,000. The $7,500 federal tax credit for Tesla car buyers, following the terms of the program, was cut in half in January. It will be halved again in July, and will disappear after Dec. 31.
The cheaper versions of the Model 3 present another problem: Can Tesla make a profit at the $35,000 price, when it’s had so much trouble making a profit with far higher average selling prices?
Most Wall Street analysts on average have soured on Tesla stock, lowering their target prices, with several suggesting that current Tesla stockholders sell now. But true believers remain, including Ark Invest, which has put a $4,000 target price on Tesla stock, with no date attached.
Musk for the first time sounded a downbeat note about Tesla’s future in a tweet Saturday, aimed at short sellers who are betting the company is grossly overvalued. “Tesla is just trying to make electric cars & solar power for a better future for all. True, we might not succeed, but why do they want us to fail?” he said. The tweet came after Tesla won a temporary restraining order against a short seller for allegedly interfering with the filming of a Tesla running on driverless software.
On Monday, Musk laid out a scheme to deploy an app-based fleet of driverless Tesla robo-taxis by the end of next year. Tesla car owners could add their own cars to the network and share revenue with Tesla. Safety advocates and a group of competing automakers complained that the technology for driverless cars is not ready for wide-scale deployment. (Musk himself promised to send a driverless car from California to New York in 2017, but that never happened.)
Some stock analysts are wary of the plan, as well. “The Silicon Valley ‘move fast and break things’ approach — and I’m not just talking about Tesla — is going to encounter departments of transportation and state legislators and find out this is a lot harder than they think it’s going to be,” said Joseph Osha of JMP Securities.
Beyond robo-taxis, Musk is planning to manufacture a Model Y crossover, a roadster and a semitruck. He said Monday an electric pickup truck will be unveiled later this year.
Where the money for such projects will come from is unclear. Cash flow is declining even as capital expenditures fall.
Goldman Sachs analyst David Tamberrino has a “sell” recommendation on Tesla stock, with a target price of $210. In a recent note to investors, he said that “sustained positive free cash flow general that allows the company to self-fund growth” would improve his opinion of the company’s prospects.
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