20 January 2020
Shares of Tesla have dropped 22 percent since the beginning of the year. Photo: Bloomberg
Shares of Tesla have dropped 22 percent since the beginning of the year. Photo: Bloomberg

Tesla pushes back profit target to Q4, shares fall 11.5%

Tesla Inc. missed financial targets in the second quarter despite record deliveries of its electric vehicles, adding that the carmaker will break even this quarter, rather than post a profit, Reuters reports.

In a surprise announcement, chief executive Elon Musk said veteran Tesla executive J.B. Straubel would step down from his chief technology role to become a senior adviser. Straubel is the executive behind Tesla’s battery and has been at Tesla since its founding.

Automotive gross margins, a focus for investors, dropped in the quarter to 19 percent from 20 percent, even as revenue from robust deliveries fell short of analysts’ expectations.

Shares fell 11.5 percent in after-hours trading on Wednesday.

Under pressure to meet his promise to post profit in the second half of the year, Musk is trying to contain costs while still spending on major initiatives from a Shanghai factory and assembly-line to upcoming models such as the Model Y SUV and a Semi commercial truck.

Musk said the company had grown to the point of “being self-funding” going forward, then said that he expected it to break even this quarter, then post profit in the fourth.

That was a step back from a prior prediction, underscoring Tesla’s challenges in meeting profit goals.

After initially promising Tesla would be profitable starting from the third quarter of 2018, the company warned in February it would not be profitable in the first quarter, due to a major drop in deliveries.

It gave a similar warning for the second quarter in April, saying it expected to return to profitability in the third quarter.

In a press release on Wednesday, Tesla was less definitive: “We continue to aim for positive GAAP net income in Q3 and the following quarters, although continuous volume growth, capacity expansion and cash generation will remain the main focus.” analyst Clement Thibault told Reuters that Tesla’s results “will inevitably lead to more questions about its ability to stabilize and turn a profit”.

Even while growing, Tesla has laid off workers and pledged to close some stores to lower costs. Facing increased competition from a slew of European rivals with electric offerings, it has also tinkered with its pricing.

Most recently, it eliminated the least expensive versions of its Model S sedan and Model X SUV, while cutting the starting price of its Model 3 to US$38,990.

Tesla said on Wednesday it had trimmed its capital expenditure target for 2019 to US$1.5 billion to US$2.0 billion, from US$2.0 billion to US$2.5 billion.

Tesla’s strong second-quarter deliveries assuaged doubts about demand for the Model 3, but concerns linger, especially since a federal tax credit was cut by half on July 1 and expires at the end of the year.

Many analysts note that Tesla will be challenged not only to meet its deliveries target of 360,000 to 400,000 vehicles this year, but to keep profit margins from further eroding.

The company on Wednesday repeated a target of producing 10,000 vehicles per week by the end of 2019.

A 58.7 percent revenue rise to US$6.35 billion in the quarter fell short of the US$6.41 billion estimated by analysts, according to IBES data from Refinitiv, even as a non-GAAP loss of US$1.12 per share was deeper than the loss of 36 US cents they expected.

Shares of Tesla are down 22 percent since the beginning of the year, but they have been rebounding since early June, after hitting their lowest close since early 2016 at US$178.97.

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