Elon Musk has notified observers that he expects Tesla to begin to start turning a profit this year. Last week he tweeted that Tesla would start to show a profit in the third and fourth quarter of 2018. This would be a first for a company that’s lost a total of $4.6 billion in the last 8 years. Online games bettors and stocks consultants were surprised by Musk’s announcement especially considering that the last time that Tesla turned a profit, it was a narrow one in 2016.
But Musk is confident that his company has some surprises up its sleeves. He refuted a report in the Economist that reported that the Jefferies Wall Street Firm was estimating that Tesla will need raise $2.5 billion to $3 billion later this year to avert a cash crunch.
Musk tweeted that “the Economist used to be boring, but smart with a wicked dry wit. Now it’s just boring (sigh). Tesla will be profitable and cash flow positive in Q3 and Q4, so obviously no need to raise money.”
Tesla
Tesla founder Elon Musk is best known as a visionary who has plans to make mass space travel a reality. He is also the founder of Tesla, a company that specializes in energy storage, solar panel manufacturing and electric vehicles. Some of the company’s products include electric cars, residential photovoltaic panels (for solar energy) and lithium-ion battery energy storage.
Musk wants to eventually manufacture electronic cars on a mass scale (he named Tesla after physicist/electrical engineer Nikoli Tesla) but to date the company, which Musk founded in 2010, has only turned a profit twice, once in 2013 and once in 2016. The profits on those occasions were minimal.
Financial Platform
Since Tesla’s founding Musk has concentrated on growing the company rather than turning a profit. Lenders and investors have given Musk billions of dollars so that it could grow and develop. In particular, investors are interested in seeing the Tesla electric car become a reality because it would give Tesla a monopoly on the product as well as on the charging stations that would be needed to charge the batteries and on building the batteries themselves.
There are reports, however, that Tesla is behind on the production of its Model 3 sedan. Those reports have taken their toll on the company’s stock shares. To date Tesla has received 500,000 orders for the car but has only been able to deliver 12,500.
Musk is interested in assuring both investors and the public that the company does not need to raise more money in order to fulfill its initial orders and take new orders. Stockholders are nervous and Tesla has fallen more than 20% since its record high of last September.
Elon Musk
In the past, Musk’s comments about the financial health of Tesla were calm and measured. In February he said, “It’s not certain, but I’m cautiously optimistic that we will actually be….profitable with no asterisk,” at some point in 2018. Last week’s tweet, by comparison, seemed hasty and showed a bit of nervousness.
Future
As soon as Tesla can start building the Model 3 at a significantly faster pace it will be able to bring in cash. According to Tesla, it is expected that it will be able to build 5,000 Model 3’s every week within 2 months. The company estimates that it will soon be able to build 10,000 cars a week. That’s about a half million a year, significantly more than the roughly 340,000 cars it has sold since it first started building the cars 10 years ago.
Stock
Even before the Jefferies analysis, Moody’s downgraded Tesla’s stock into junk bond status. Moody’s also warned that the stock could face further downgrades. Vilas Capital Management, a hedge fund, is taking a large short position in its bet that Tesla stock may soon plunge due to its present cash-flow problems.
Financial analysts take Musk’s history of failing to deliver on his promises into consideration. They point to his prediction that his company would build 500 Model 3s a week when the company started building the cars in 2010. In point of fact, by the end of 2017, less than 3000 have been built.
Yet this time Musk seems serious. A leaked email, made public this week, indicates that Tesla feels that it will be able to increase the Model 3 production by hiring extra people and adding a third shift at its Fremont assembly facility. On the one hand Tesla will be adding costs to its production system which could stretch Tesla’s financial resources to the breaking point.
On the other hand, it’s known that Tesla will probably need to implement another extended shutdown in Model 3 production in May to tweak the production process which will impact the speed-up.
If Musk wanted to calm his investors, lenders and other financial observers, he should have provided figures to show how the new shift and added workers will increase output and bring in cash. Instead, no figures have been given, leaving everyone in the dark about how Musk plans to pull the rabbit out of the hat.
Right now investors want to know:
- When they can expect a report of the first quarter earnings
- What the core profitability of the Model 3 will be
- How the company can regain its footing after stretching its resources so thin
It’s going to take more than a tweet to answer those questions.
