Tesla Outlook: 5 Questions for Elon Musk on Earnings Day

Tesla showed it could make money selling pricey electric cars when it reported a substantial profit for the third quarter of 2018.

Now the company has to prove it can do that consistently, quarter after quarter.

Investors and other Tesla followers will get a good look at the company’s prospects Wednesday afternoon when the upstart automaker reports earnings for last year’s fourth quarter. On Jan. 18 its chief executive, Elon Musk, said in a blog post that Tesla’s profit would be less than the $312 million it earned in the previous quarter.

But how much less? Mr. Musk added that with “some luck” the company would be able to “target a tiny profit.” He also acknowledged that Tesla’s costs were too high and that its vehicles were too expensive for most consumers.

“We need to reach more customers who can afford our vehicles,” he said. Tesla’s most affordable car is a midrange variant of the Model 3 that starts at $44,000 before tax incentives. Adding options can drive the price up to $70,000 or more — well outside the range of most mainstream buyers.

Tesla originally promised that the Model 3 would start at $35,000, but Mr. Musk has said the automaker would lose money if it sold the car at that price now. Earlier this month, he said the company would cut 3,000 jobs — about 7 percent of its full-time work force — to reduce costs.

The earnings report will reveal how much cash Tesla has — it had $3 billion at the end of the third quarter — but Mr. Musk has been reluctant in the past to provide the kind of financial details that analysts want in order to forecast future earnings. When pushed for some specifics in an earnings call last May, Mr. Musk cut the analyst off, adding “Boring, bonehead questions are not cool.”

It is unclear how deeply Mr. Musk will go into Tesla’s finances this time, but he’s sure to face some key questions. Here are some of them.

Tesla is supposed to pay off a $920 million convertible bond in March, which could eat up a large chunk of its cash at a time when it is investing heavily to add showrooms, service centers and charging stations, expand into additional markets and develop new models. They include an electric pickup truck, a semi truck, and a small sport-utility vehicle, the Model Y, which Tesla has said it will unveil this year.

The company could pay bondholders fully or partly with stock — but only if the share price is about $360. On Wednesday, it opened at $300.45.

“The shares are way out of the money, so it looks like Tesla will have to pay in cash, or find a way to refinance the bonds,” said David Whiston, an auto analyst at Morningstar.

Mr. Musk has repeatedly said Tesla won’t issue more bonds or sell additional stock to stabilize its finances, but many analysts are skeptical, especially if it has to pay the $920 million in cash.

Rows of new Tesla Model 3 electric vehicles in Richmond, Calif., last year. Mr. Musk complained of “delivery logistics hell” as the model came off the production line.CreditStephen Lam/Reuters

The company is already carrying nearly $10 billion in debt. Issuing new bonds would increase its debt load. Selling additional stock could worry investors

At one time, Tesla said it had more than 400,000 reservations for the Model 3, enough to keep sales and production humming through 2019. Some were deposits on the $35,000 version of the Model 3, which is not yet available.

But several recent developments could dampen interest in the car. On Jan. 1, the federal tax credit available to Tesla buyers fell from $7,500 to $3,750. On July 1, the tax credit drops to $1,875, and it will be eliminated on Jan. 1, 2020. Each decrease effectively makes Teslas more expensive, and could put off some customers.

The company is ending a program that provided free charging to certain buyers, a move that will further increase owners’ costs.

At the same time, Tesla has taken actions in recent weeks suggesting that demand could be less brisk than it was in the third quarter. It has cut prices on all models by $2,000 to offset some of the decline in the federal tax credit.

In conjunction with its latest job-cutting action, Tesla is lowering production of the Model S luxury sedan and Model X S.U.V. The company is starting sales in Europe, but it is unclear how fast they are rising. And it is pushing into China, where it broke ground for a factory this month, but those ambitions may be hampered by trade tensions.

Last fall, Mr. Musk said Tesla was experiencing “delivery logistics hell” as it scrambled to deliver all the Model 3s rolling out of its factory in Fremont, Calif. Many customers experienced delays and confusion at showrooms. At one point, Mr. Musk encouraged Tesla owners to work as volunteers at delivery centers to introduce other owners to their cars.

At the same time, some owners have reported waiting weeks or months for repairs because of a shortage of spare parts, and have complained about quality problems, like cracked windows or loose rear bumpers. Tesla has about 160 showrooms and delivery centers in the United States, and about 75 repair centers.

Mr. Musk has vowed to add more showrooms and service centers, but acquiring locations and outfitting and staffing them takes months, and adds cost at a time when Tesla is trying to rein in expenses.

While Tesla was struggling to deliver cars in November, Mr. Musk said in a tweet that Tesla had acquired trucking companies. But Tesla has declined to name those businesses, or elaborate on the transactions. Usually, companies report details of acquisitions in filings with the Securities and Exchange Commission, but Tesla has not done so.

In August he tweeted that the company had “funding secured” to go private, and after the statement proved to be incorrect, the S.E.C. sued Mr. Musk, saying he had misled investors. He and Tesla each paid $20 million to settle the matter. Tesla was also supposed to set up a committee of directors to review Mr. Musk’s communications with investors.

The matter of the trucking companies raises new questions about Mr. Musk’s credibility, and whether he and Tesla are complying with the S.E.C. settlement.

This article is from NYT – go to source

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