EV maker faces huge losses despite a high market valuation. We speculate on its future
24 October 2019

A year ago, one noted automotive analyst admitted privately that he thought Tesla might have effectively gone bust.

He had good reason: the link between Tesla’s share price and its financial performance had long since been severed. Even in the wake of this week's surprise quarterly profit and subsequent share price rise, overall revenues were below expectations, and well short of last year's figures.

The reason a banker with huge experience would have questioned Tesla’s viability is simply that the stock market valuation was detached from the real value of the business.

This detachment peaked in 2017, a year in which Tesla delivered around 103,000 cars globally. Ford, by comparison, delivered around 6.5 million cars. In June 2017, the market valued Tesla at $64 billion, rather more than Ford and GM.

Today, Tesla remains highly valued despite very significant losses.

Even with the Model 3 rolling off the production line, Tesla lost $710m in the first quarter of 2018 and $718m in the second quarter. In the third and fourth quarters, it made profits of $311m and $139m respectively, although some claim this was partly because Tesla sold ‘pollution credits’ to other car makers.

But in the first six months of 2019, it was back in the red.

First, there was a 31% drop in Tesla sales between January and March. According to US media, Tesla shifted around 50,900 Model 3s but the aging Model X and Model S netted only 12,100 sales between them. Upshot: a loss of $702m.

The losses were pulled back in April to June of this year, but only to $408m. According to analysts, Tesla also spent $1.5bn from its cash pile and borrowed $500m from Chinese lenders as its new Gigafactory 3 near Shanghai got under way.

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The harsh reality was that Tesla’s second quarter profit margin was -19%.

Even so, in September, Tesla is still being valued at well over $40bn. Not bad for a car maker that expects to sell fewer than 400,000 vehicles in 2019 and probably won’t make a full-year profit.

As we head into the latter part of 2019, Tesla is poised to make some big announcements that, it insists, will finally push it into sustainable profits.

This pivots around tapping into the Chinese market, still the world’s biggest for EVs, and launching the Model Y, an SUV based on the Model 3.

Tesla's Model 3

At the end of August, the talent of CEO Elon Musk for picking up excitable publicity from Tesla fans was in full effect when pictures from inside the Gigafactory 3 appeared online. Although the building was clearly complete – impressive when construction had only begun in December 2018 – it was not recognisably a car factory.

Even so, a Model 3 bodyshell was seen front and centre, described as the first “China-built” 3.

A few days later, this car was displayed at the World Artificial Intelligence Conference in Shanghai, as Musk flew in for a public debate with Jack Ma, China’s richest man. In terms of publicising Tesla’s arrival in China, Musk could hardly have done a better job.

However, his tendency to promise unusually rapid progress remains: the claim is that Chinese Model 3 production will begin before the end of this year.

The Model Y is being promised for 2020 and hype about the Tesla ‘truck’ continues to swirl online. But there are big hurdles.

Musk’s purchase of solar panel maker Solar City is in difficulty, with plans for a huge plant in Buffalo, New York stuttering and a lawsuit from retail giant Walmart, which accuses Tesla of “gross negligence” because of alleged solar panel fires.

Musk is also pressing on with the promise of full autonomy in the near future, something the rest of the car industry doesn’t believe is safely achievable.

Tesla has also launched its own insurance scheme in California to try to reduce owner costs.

And although the Model 3 is doing relatively well, sales of the Model S and X are falling as rival EVs from premium car makers, such as Audi’s E-tron, finally go on sale.

Tesla remains the definitive outlier, a car firm that is defying normal financial gravity and seems to be able to raise cash and expectations while losing huge amounts of money.

No one could bet against its survival, even after the giant car makers finally arrive in the EV market, all guns blazing.

Note: this piece was originally published in Autocar magazine before Tesla's Q3 financial results were confirmed.

 

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Comments
37

24 October 2019

Tesla is poised to make some big announcements that, it insists, will finally push it into sustainable profits.

Tesla has been saying that more times than Del Boy said "This time next year we'll be millionaires".

They were supposed to be in the red years ago according to Musk - can't believe folk are still investing in this outfit. Over the past 5yr the share price has barely moved and remember, this after Model 3 has been introduced which was supposed to be the game changer.

Admire Musk's vision and determination but with the honeymoon over the big guns will kill this charlatan off.

24 October 2019

Go and eat some crow and grow a brain

24 October 2019
scotty5 wrote:

... Over the past 5yr the share price has barely moved and remember, this after Model 3 has been introduced which was supposed to be the game changer.

Thought you might be interested in some facts scotty5

Tsla 5 yr price 240 UP to 290 (close of trade price)

BMW 90 DOWN to 69

Daimler AG 60 DOWN to 50

Ford 136 DOWN to 9.21

You were saying?

24 October 2019

whoops Ford are 13.6 DOWN to 9.21

24 October 2019

Tesla just posted that they had positive net cashflow of $383M, and now have US$5.3B in cash on hand. They just posted a profit of $261M in Q3/2019.

They showed pictures of the Shanghai factory, the ONLY fully owened foreign autoplant in China (no JV), with dozens of models in pre-prodution. A real factory!!!

They also indicated that Model Y readiness is ahead of schedule and production will now start in summer/2020 vs fall. 

This is a company that is on a roll. Stock is up 20% today alone in US aftermarket hours.

How can one editorial article be so completely wrong on virtually everything?

24 October 2019

Because they are so shortsightedness.

I wonder how long this article will stay up with teslas positive news?

24 October 2019

You dorks at Autocar just proved how incompetent and biased you are. Tesla stock just went up 20% you moron and beat every expectations yet you just wrote this piece of negative garbage without even checking the news? This isn't 2012 anymore you lazy fool...and VAG isn't going to fund you  forever so get your head out of the muck and face reality for a change. It getting too stale even for the Teutons to take 

24 October 2019

This magazine is short footed everytime it writes something negative about Tesla. 

Its overwhelming hatred of Musk and Tesla is completely unreasoning and just downright sad.

Here is a relatively new car company that has advanced automobile technology beyond anything any of the established  legacy car makers have in just 15 years and all it does is bash them over and over again.

It doesn't seem to matter that it has kicked the backside of every major company into sustainable transport programs. Pathetic.

A few days ago parkers awarded the model 3 one of it highest excellene awards of the year yet not a single mention was made in this mag.

It beggars belief that some of the journalists have jobs as they seem like dinosaurs stuck in tar.

Start giving this company some credit for a change and stop being so ridiculously negative.

24 October 2019
Why does Autocar continue to post deliberately misleading, inaccurate anti-Tesla trash like this? Is it lack of research, or are they paid by competitors to create these articles?

24 October 2019

I think you are making a very good and serious point. I've thought that competitors might have leaned on this mag to give a negative slant on Tesla as they support this mag with their advertising revenue and Tesla famously has zero advertising.

Hmmmmm...

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