Tesla’s third-quarter figures didn’t merely point to poor performance – the USD 671 million loss in particular was way more than anything most analysts had predicted. Based on non-GAAP accounting, including adjustments, shares lost USD 2.92 each. GAAP, which has the more relevant figures in my opinion, showed minus USD 3.70 per share at a revenue of USD 2.98 billion, which includes SolarCity’s.
What shouldn’t sit well with investors either is that the production of the immensely important Model 3 has been far behind schedule. Right now, we are talking about no more than a few hundred vehicles, 260 to be precise. It will take a long time before CEO Elon Musk’s predictions and targets – initially 5,000 and later 10,000 per week – could come true. The schedule calls for their fulfillment at the end of 2018’s first three months. However, the massive investment in production facilities will again require more capital during the last quarter of 2017 and the first of 2018.
More smoke and mirrors
On the other hand, the media couldn’t be more captivated, as Musk recently presented new Tesla options in the form of a semitruck and a roadster. But it’s anyone’s guess when they can be produced, let alone delivered. The introduction of the electric truck, for which big corporations such as Walmart and DHL have already placed initial orders, is scheduled for 2019. The roadster – priced at USD 250,000 – may not enter series production before 2020, but can be preordered through a USD 50,000 deposit. There are said to be between 1,000 and 5,000 Tesla fans who have deep enough pockets to be persuaded to become part of a select group of electric roadster pioneers. Tesla (Nasdaq: TSLA) couldn’t be happier about this, as it would rake in a good USD 250 million – basically, as an interest-free loan. But does this amount of cash make up more than a drop in the ocean?
Optimist or pessimist?
Those investors who firmly believe in Tesla’s success see a glass that’s half full. They are convinced that the corporation’s high losses stem from necessary investments in the automaker’s future and that the heavy capital drain is a logical prerequisite for increased Model 3 and battery production capacity. The dramatic rise in revenue that they expect in 2018 and the highly profitable line of business they feel developing over the coming years are their reasons for pouring that much money, and more, into the company.
On the other side of the fence, there are the pessimists, whose more than 30 million short sales reveal their skepticism about the company’s progress. Perpetually increasing capital demand and delays in Model 3 production are reasons enough for them to consider Tesla a doomed enterprise. The worse the company’s financials get – something that even rising revenues can’t compensate for – the more difficult it will be for Tesla to raise capital. In other words, the next time the corporation asks for money by issuing shares, it may have to offer a high discount compared to the price at which it is quoted on the stock market. Institutional investors will certainly expect some compromise, which is not a good sign at all. And then there are the debts Tesla will have to refinance over the next years, SolarCity’s among them. It could offer asset-backed securities, but that would eat away at the business’s substance.
Megabattery finished in time
Share range: USD 400 to USD 200
My prediction is in line …
Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small and mid-cap ones, i.e., they may experience high stock volatility. This article is not to be taken as a recommendation of what shares to buy or sell – it comes without any explicit or implicit guarantee or warranty. All information is based on publicly available sources and the content of this article reflects the author’s opinion only. This article focuses on mid-term and long-term prospects and not short-term profit. The author may own shares in any of the companies mentioned in it.
Written by Sven Jösting in December 2017