The joy and pain of earnings reports
Tesla: Model 3 sales surge, but stock plunges
Tesla surprised many analysts and investors this month when it said it delivered a record 95,200 cars in the second quarter, a roughly 50% increase from the first three months of the year. The news lifted its sagging stock price as well as the spirits of its customers and many fans.
Then came the bad news Wednesday, when the Palo Alto company’s sales and loss
es were worse than Wall Street expected. The stock plunged nearly 14% Thursday.
Tesla said Wednesday that it lost $408 million in the second quarter, compared with a loss of $702 million in the first quarter, when sales slumped as the company struggled with logistical challenges, including getting thousands of its Model 3 sedans to Europe and China.
The secondquarter loss amounted to $2.31 per share. Revenue jumped to $6.3 billion, from $4.5 billion in the first three months of the year.
Both figures came in below Wall Street’s expectations. Analysts had expected a loss of $1.27 per share and revenue of $6.5 billion, according to FactSet.
Tesla said its chief technical officer, J.B. Straubel, would step down and become a senior adviser to the company. He will be replaced by Drew Baglino, currently Tesla’s vice president of technology.
Straubel is the latest and most senior executive to leave a company that has lost many top managers over the past few years. He was part a group of employees who joined the company at its founding, and has overseen the engineering and technical design of its vehicles. Two of Tesla’s top manufacturing and technical executives, Peter Hochholdinger and Steve MacManus, also left the company recently.
On a positive note, Tesla said it generated $614 million in free cash flow. Including the $2.4 billion it raised from an offering of stock and convertible bonds in May, the company ended the quarter with $5 billion in cash.
“We believe Tesla is at the point of being selffunding,” CEO Elon Musk said in a conference call Wednesday.
Separately, Ford Motor on Wednesday reported a $148 million profit for the second quarter, down from $1.1 billion a year ago, the latest sign of slowing auto sales around the world.
Typically, a big jump in deliveries means a carmaker is doing well and minting money. But that was not the case for Tesla because it is spending heavily. The company is building a plant in China, which it said should begin producing the Model 3 by the end of the year. It is also developing several vehicles and making improvements to its customer service.
Its record sales in the second quarter came at a cost: Tesla pumped up demand in part by cutting prices. The most recent cut was last week, when it lowered the price of the most affordable version of its Model 3 sedan by $1,000, to $38,990.
It’s unclear how much money, if any, Tesla makes on the lowerpriced versions of the Model 3. All told, the sedan made up more than 80% of the company’s deliveries in the second quarter.
“The Model 3 hasn’t reached a combination of sales volume and price that produces profits,” said Erik Gordon, a business professor at the University of Michigan who follows Tesla. Investors have to worry about whether it can reach a profitable combination, he added.
“The good news is the cash flow picture,” he said. “The company is not about to run out of cash.”
A big problem for the company is that demand for its more expensive, and more profitable, Model S luxury sedan and Model X SUV has fallen sharply this year.
In the second quarter, combined sales of the Model S and X totaled about 17,700. That was about 5,600 more than in the first quarter, but 10,000 fewer than it sold in the last three months of 2018.
“It is obvious the appetite for the Model S and X is not that strong,” said Shane Marcum, general manager of the CrossSell Reports, which tracks registrations of new cars in 23 states. “The Model 3 is cannibalizing sales of the S and X.”
Industry analysts and car enthusiasts have also been speculating that Tesla might soon redesign the Model S and X, which were first introduced several years ago. But Musk said on Twitter earlier this month and again Wednesday that was not the case.
Tesla said that demand for its electric cars would continue to grow in the second half of the year. The company has set a goal of selling 360,000 to 400,000 cars in 2019. Sales in the first six months of the year put it less than halfway to that total, and it will have to sell 100,000 or more cars in each of the final two quarters to hit the target.
The company could find that difficult. Effective July 1, the federal tax credit available to Tesla’s customers in the United States fell by half to $1,875. On Jan. 1, the tax credit will go away entirely.
For this year at least, Tesla cannot count on any new models to attract customers and drive sales higher. It is working on the Model Y, an SUV that shares a lot of parts with the Model 3 but will come with up to three rows of seating, rather than the Model 3’s two rows.
But that car is not scheduled to go into production until late in 2020. Tesla is also working on a pickup truck and a semi truck, but they are not expected to arrive until after the Model Y.
Musk said Tesla expected to be “about break even” in the third quarter and profitable in the fourth quarter. The company also lowered its outlook for capital expenditures this year, to a range of $1.5 billion to $2 billion, from an earlier estimate of $2 billion to $2.5 billion. The company said it is becoming more efficient and was putting off some spending.