The bloodletting among the executive ranks at Tesla (Nasdaq: TSLA) continues. The carmaker’s general counsel stepped down only two months after taking the position and its chief financial officer, who had already been in this role once before, years ago, resigned as well, this time after two years. This doesn’t bode well. Tesla’s CEO, Elon Musk, at least managed to bring his billionaire friend and Oracle founder Larry Ellison on board. Ellison has bought Tesla shares worth over USD 1 billion, making him the automaker’s second-largest private shareholder, after Musk.
However, the fourth quarter of 2018 produced relatively underwhelming results. And Musk himself doesn’t see the first three months this financial year as a time to fulfil high expectations. More specifically, while revenue in Q4 grew at a considerable rate, to more than USD 7.3 billion, Tesla posted profits of as little as USD 139 million, or USD 0.81 per share, based on GAAP accounting. One good piece of news was that cash flow was positive and stood at USD 910 million. Cash reserves increased as well, to USD 3.7 billion. However, some of that money, or, more specifically, USD 793 million, came from deposits and USD 920 million needed to be paid back for a convertible bond in early March.
Maxwell Technologies – strategic acquisition
Tesla’s announcement to buy battery developer Maxwell Technologies for USD 222 million in shares, since the company is also listed on the stock exchange, was well received by analysts. But what the automaker needs to show is how Maxwell’s equipment could be integrated into its vehicles and which improvements that will bring. The battery developer seems to possess highly advanced technology and, of course, Tesla intends to make use of it. At present, though, the ball is in Maxwell’s court, since some of its shareholders filed a class-action suit to try to block the acquisition – which they certainly could if they won in court.
Gone are the days of full-throated promises to have production up and running in China at the end of 2019. No more announcements have followed the groundbreaking ceremony at Tesla’s Shanghai site, acquired through a leasing arrangement. What is less than clear at this point is who will make the money available to build another Gigafactory. To produce in China, companies first need to be approved for vehicle trading in China. As reported elsewhere, the corporation may not even have gotten that far yet. However, everything else hinges on it.
Major shareholders cut back investments
T. Rowe Price is one, but not the only, example of a major shareholder that used the fourth quarter of 2018 to reduce its Tesla stock on a massive scale. More specifically, in one quarter alone, it nearly cut down its stake in half, keeping just 9 million of its 17.4 million shares. Goldman Sachs analysts and others stick to their previous recommendations, telling shareholders to sell while setting a price target of around USD 225. I concur. I really don’t see how Tesla can turn things around, and the competition is growing stronger every day. Even demand for Model 3 in Asia and Europe doesn’t convince me otherwise. Drastically lower delivery times as of late leave me to conclude that the number of orders may be lower than I had assumed.
As for Model 3 leasing offers, one needs to consider the comparatively high price of the car. It will probably be above EUR 55,000 in Europe. Although a USD 50 billion market cap is USD 10 billion below where it was the last time that I wrote about Tesla for H2-international, it is still way too high, despite the prospects for autonomous driving and other technologies. In many countries, including the United States, electric car incentives are being phased out. The lack of these incentives is putting pressure on the market. Can sales in China and Europe make up for a drop in the US by providing new growth opportunities?
Musk being Musk or how to keep everyone guessing
On February 28, Musk announced that Tesla would move to online-only sales, that is, customers would have to buy their vehicles on the internet. Plans are to shut down all local showrooms, so say goodbye to a cross-selling strategy that involves in-person sales of Powerwall battery storage units and PV modules. Tesla said it would, at last, be able to offer Model 3 for USD 35,000 sometime in 2019. But the federal government’s tax breaks are all but gone. Additionally, the company cut the prices for its Model S and Model X but made the software program for autonomous driving more expensive: It is now at USD 7,000. Good news? No, not at all. Extraordinary losses because of write-offs and stores closing was how this year’s first quarter wound up with a loss, not a profit. Will the company’s recently announced SUV, Model Y, turn out to be Tesla’s secret weapon?
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