Tesla earnings for the first quarter a SHOCK?

Tesla earnings for the first quarter have been released, and they don’t seem promising. After having a great fourth quarter last year, their car sales have dropped. However, there are reasons behind everything; and we are going to cover all of them right now.

Tesla earnings in the first quarter

Tesla earnings from the first quarter for 2019 have fallen short of Wall Street’s revenue estimates after they posted 4.5 billion dollars in revenue. Also, Tesla had a GAAP loss of 702 million dollars, unlike in the fourth quarter last year when they posted a GAAP profit of 139 million dollars on revenue of 7.2 billion dollars. That means that their revenue dropped by 37% in the first quarter. The company reported a loss of 2.9 dollars per share on revenue of 4.54 billion dollars in Tesla earnings report. Analysts have expected the company to have a loss of 0.87 dollars on revenue of 5.46 billion dollars. Additionally, that is compared to a loss that Tesla had of 3.35 dollars per share on revenue of 3.41 billion dollars in the same period last year. Despite the Tesla earnings report being a big miss, their shares saw a rise of 1.14% in after-hours trading. However, they have fallen 2% in regular trading, and they are down something around 22% in 2019. However, during the first quarter, Tesla has gone through a few restructuring changes, and they have reported a cost of 67 million dollars because of the changes. Also, demand for the Model S and Model X have fallen significantly in the first quarter. They are attributing the demand fall to ‘’seasonality’’, reduction in the US tax credits, and discontinuation of the 75kWh battery pack. While Tesla earnings report wasn’t so good, they have, however, revealed that Model 3 production would for the first time be moved from customised orders to volume production. This is different than what they are doing with the production of the Model S and Model X. The gross margins for cars that they have built dropped from 24.3% to 20.2% on a GAAP basis. They are attributing this to reducing the price and fewer deliveries of the Model S and Model X, and also the lower cost of the Model 3 that is available in the market. However, Tesla is saying that they continue to push for a 25% gross margin on a combination of all three models.

Sale of the cars fall from the fourth quarter

Sale of the Tesla cars rose 36% to 3.72 billion dollars from 2.74 billion dollars last year. However, it is down 41% from the fourth quarter in which the company generated 6.32 billion dollars in car revenue. The 7,500 federal tax credit that was paid to people that buy electric cars was cut in half on January 1, so that attributed to high demand during the last months of the year; that is why the consumers were rushing to buy Tesla’s cars and the reason that demand was down in the first quarter this year. Elon Musk said that logistical challenges, and also seasonality had an impact on sales; since people don’t like buying cars during winter.

The benefit of raising capital

After the Tesla earnings report, in a conference call, Elon revealed plans to launch a new product, perhaps even next month. He has also stated that capital hasn’t been a restraint on the company’s growth. However, he believes that there is some benefit of raising capital at this point. Tesla has paid off 920 million dollars in debt last month and is now facing another 180 million dollars in debt that is due. They announced that they are planning on closing stores and implement layoffs during the quarter to cut costs. Also, Elon said after the Tesla earnings report that they are still deciding on where they will produce the Model Y compact SUV. For now, they are leaning toward making the car at their car plant in Fremont. They did, however, consider building the Model Y at their Gigafactory outside Reno.

Gigafactory 3

Tesla is expecting to reach its volume production at its third Gigafactory that is located in Shanghai by the end of this year. The company has commented that if they reach volume production early in the fourth quarter, they would then be able to produce 500,000 cars globally in 2019. After learning from their experience with previous Gigafactories. They are now expecting to build a second-generation Model 3 line in Shanghai that can possibly be at least 50% cheaper per unit of capacity than the lines that are making in Fremont and their Gigafactory 1.

Conclusion

Tesla earnings report for the quarter might not look good right now. However, they were some circumstances that caused this as you saw. So I believe that Tesla earnings report for the first quarter will not matter for future quarters and that they will bounce back in the next. Tesla Model 3 and Gigafactory 3 will in my opinion help them with that bounce back.