It could have been worse for Tesla Inc (NASDAQ:TSLA), though it also could have been better. TSLA stock managed to top earnings and revenue expectations for its most recent completed quarter, but losses are still significant as the electric vehicle maker invests heavily in future production capacity.
For the quarter ending in March, Tesla posted an operating loss of $3.35 per share on sales of $3.41 billion versus analyst expectations for a loss of $3.58 per share on $3.22 billion worth of revenue. Tesla reported sales of $2.7 billion and a loss of $1.33 per share of Tesla stock in the comparable quarter from a year earlier.
Investors were fully prepared to accept that, and TSLA stock was up just a tad in Wednesday’s after-hours action. During the post-close conference call, however, a belligerent Musk torpedoed what patience the market was willing to maintain.
The Rest of the Story for TSLA stock
The losses, of course, mean little … for a variety of reasons. Chief among them is that the numbers then and now have been skewed by the 2016 acquisition of Solar City, and rampant spending in the meantime in an effort scale up production capacity of the Model 3.
More relevant — at least in Tesla’s case — is the number of vehicle deliveries it made last quarter. That figure was just three units shy of 30,000, up from the year-ago total of a little more than 25,000.
That’s also far more electric cars than rival EV makers like Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM) and Toyota Motor Corp (ADR) (NYSE:TM) are selling … combined. Tesla is simply mired in ramp-up costs, however, that never really seems to go away.
Still, at least for the time being the Model 3 waiting list of 450,000 drivers was enough to satisfy a fickle market — the revenue is there, waiting to be earned. Tesla stock was up just a bit more than 1% in Wednesday’s after-hours trading following the release of its first-quarter results …
… that is, until Musk urged investors “sell [Tesla] stock and don’t buy it.”
To be fair, he had a reasonable, even if misguided, point. He was passing the message along to day traders. It was in response to analysts who were asking tough questions, though. His implication was that they were only viewing things in a short-term light, implying that Tesla hadn’t overpromised and underdelivered for years.
That was enough to turn traders into an irate mob, who as of Thursday morning had lopped off nearly 7% of Tesla stock’s value.
Patience Under Pressure
The bar was set relatively low for first-quarter results. Even before Thursday’s plunge, TSLA stock was still down a bit for the past twelve months as investors have become increasingly concerned about the lack of output growth.
The proof: More and more traders are starting to see the glass as half-empty rather than half-full. The number of TSLA shares held as a short trade has grown from 27 million in the fall of last year to 38 million as of mid-April. That’s a little more than 30% of the float, indicating a massive amount of doubt about the company’s foreseeable future.
Although Q1 results could have been something of a reprieve, they still would have only bought Musk time. They didn’t actually convince investors that Tesla is on track to meet its lofty goals.
Not that it really matters.
Investing.com’s Senior Analyst Clement Thibault described the unique scenario by saying, “Tesla, guided by founder and CEO Musk, is walking down a familiar, visionary path. That means there’s a large and enthusiastic group of followers.” Thibault added, “but an apparent inability by the visionary himself to nail the details and succeed at actual execution.”
The “execution” in question is mostly in regards to the Model 3. As of the final week of the quarter, Tesla had only been able to crank output up to 2270 units. It’s a far cry from the 5000 Musk suggested would be produced on a weekly basis when he started talking detailed numbers in the middle of last year.
It’s a gambit that has been a pain ever since, as all eyes are indeed judging the company on that metric. KeyBanc Capital Markets analyst Brad Erickson commented before Wednesday afternoon’s earnings release: “Cash burn and trajectory of Model 3 production ramp remain the most likely impediment to the stock moving higher.”
It’s a big impediment, however, and clearly was a sore spot for Musk during the earnings call.
Bottom Line for Tesla Stock
The great irony is, for as much noise as the company has been able to make and as much ramp-up as we’ve seen for the Model 3’s production, the post-Q1 Tesla still looks a great deal like the pre-Q1 Tesla. Not nearly enough has actually changed, considering last year’s promises of producing 5000 Model 3 vehicles per week well before this point in time.
As was noted, Tesla did well enough to keep investors on board for another three months. They may have just been glad Tesla seems to have circumvented a liquidity crunch in the meantime.
In his letter to shareholders, Musk also touted the cash balance of $2.7 billion as of the end of the quarter. The letter even noted that the previous projection of more than $3.4 billion in capital expenditures for 2018 has since been scaled back to less than $3 billion.
That’s not how Moody’s analyst Bruce Clark saw things just a few days ago though, penning in March, “Tesla’s current liquidity position … will not be sufficient to address these cash needs going forward,” alluding to at least $3 billion worth of fund-raising that would need to be done before the end of the year.
The opposing liquidity viewpoints are a microcosm of why investors should take analyst forecasts for $19.2 billion worth of revenue this year and a projected loss of $7.00 per share of Tesla stock with a grain of salt. Ditto for the company’s expected swing to positive net income and positive cash flow for the last two quarters of this year. A lot can change in a short amount of time, and with Tesla, it usually does.
Indeed, in the matter of an hour on Wednesday, an acceptable first-quarter earnings report turned into a nightmare for Tesla stockholders. Investing.com’s Thibault may have hit the nail on the head, so to speak:
“Though setting the bar too high might be important for securing funds, over promising without the capacity to deliver eventually catches up to you. In Tesla‘s case, big-time.”
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.