Tesla (NASDAQ:TSLA) is all but assured to report a loss Wednesday when it releases its first-quarter results. Unless Elon Musk can pull a rabbit out of his hat, TSLA stock could look expensive in the wake of the results
Now don’t get me wrong, I would love to see Musk deliver the unexpected, since I’m a longtime fan of both TSLA and Musk.
However, given the fact that the company has a $920 million bond payment due during the quarter and Musk’s already said that it would lose money in Q1, only super-positive guidance for the remainder of the year will keep TSLA stock from losing another $20-$30 in the wake of the results.
Right now, the big concern for the owners of TSLA stock is cash flow, a subject that previously became less pressing due to the profits the company reported for Q3 and Q4 of last year. After TSLA reports a Q1 loss, those shorting TSLA stock will be back with a vengeance.
A New Cash Crunch for Tesla Stock
TSLA finished 2018 with free cash flow of -$2.9 million, a significant improvement from the -$3.5 billion it generated in 2016. After the company’s two consecutive quarters in the black, optimism grew that Tesla had put its cash crunch behind it.
No such luck.
I doubt whether things will get anywhere near as bad for TSLA stock as they were in 2017, but the bond payment will take a bite out of the $3.7 billion in cash it had on its balance sheet at the end of December. So, too, will the capital expenditures required to build its Shanghai factory.
With Tesla committed to spending $2.5 billion in 2019, about $180 million higher than 2018, but well below the $4.1 billion it spent in 2017, it’s unlikely that its China Gigafactory will be built this year.
But there is some positive news for TSLA stock.
Fiat Chrysler’s Payoff
In early April, Fiat Chrysler (NYSE:FCAU) announced that it would partner with Tesla to lower FCAU’s average emissions output in Europe so it can meet stringent EU regulations set to take effect in 2021.
The Financial Times suggests that TSLA will make “hundreds of millions of euros” from the deal because Fiat Chrysler can’t afford any more settlements like the $800 million it agreed to pay the Department of Justice for its use of software to fudge its emissions numbers.
That got me thinking.
FCAU’s late CEO, Sergio Marchionne, always wanted Fiat Chrysler to merge with one of the more prominent car companies like General Motors (NYSE:GM). Now others are reportedly considering merging with FCAU.
Current Fiat CEO Mike Manley doesn’t have a problem with an automotive marriage, but any deal will have to be good to win FCAU’s approval because it’s got more than enough financial might to remain independent.
FCAU, which is in the process of selling its components business for $7 billion, finished 2018 with 3.8 billion euros in net cash on its balance sheet and 4.6 billion euros in free cash flow.
On the surface, it might not seem to make a lot of sense for FCAU to buy a company burning through cash as quickly as TSLA is. However, since Fiat Chrysler’s behind in the electric-car game, TSLA stock is cheap and about to get cheaper, and FCAU already has to rely on Tesla to pass the EU emissions test, why wouldn’t FCAU solve its electric-vehicle problem now as opposed to waiting until 2021 and beyond?
The biggest impediment to the deal is that both companies have a very large shareholder — Tesla ‘s Musk and Fiat Chrysler’s Agnelli family — so any agreement would have to be blessed by both of them.
“The Agnelli family’s history with Fiat goes all the way back to the founding of the company. They are very leery about giving up control, which makes joint-ventures where they are not the lead difficult to imagine,” Sam Fiorani, vice president of global vehicle forecasting for AutoForecast Solutions said recently.
I’m sure Elon Musk would be equally reluctant to merge, lowering the chances of my suggestion becoming reality.
The Bottom Line on TSLA Stock
I will continue to sing the praises of TSLA until I feel it’s no longer innovating. That, thankfully, has yet to happen.
Next week, when Tesla announces its weak earnings, remember that the company is a success story 14 years in the making.
It’s not that easy to kill Tesla.
If you’re long TSLA stock, I’d buy a little more on weakness following the Q1 results.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.