Fri. Sep 20th, 2019

Tesla Underperforms Production and Sales Goals

Tesla, Inc. (NASDAQ: TSLA) released its Q1 investor report last night. Unfortunately, Tesla’s production, sales and deliveries under performed, driving investors to sell shares such that Tesla’s (NYSE: TSLA) stock value fell by 8%, from USD 292 a share to USD 267. In the earnings conference, founder and President Elon Musk revealed that Tesla had been having difficulties with scaling up production, bottlenecks in deliveries, and most importantly – weak sales.

For Q1, sales were too low to reach the 2019 sales goal for 500,000 Model 3s, a consumer sedan, and the annual sales target was revised down to 400,000. The other two Tesla S and X models, luxury cars, also under performed in Q1 of 2019. In part, these misses reflect the changing economic incentives. In the United States, gas is particularly cheap nowadays. Moreover, revisions in tax law have reduced the deductions one can take on a Tesla from USD 7,500 to only USD 3,500, making the cars still more expensive. The kicker, however, is that Tesla’s car prices have remained above its 2019 goals, especially the Model 3. Tesla didn’t meet its goal of selling USD 35,000 worth of Model 3s, and it is not entirely clear how the company will try to reach that goal in 2019-2020.

With regards to delivery problems, Tesla had difficulties getting its cars to markets in Europe and Asia, especially China. Remarkably, the company still only has a single factory, located in the San Francisco Bay area.

A number of other problems concerned Tesla: in September of 2018 and January 2019, Elon Musk has repeatedly ended up on the Securities Exchange Commission’s naughty list: first for misleading tweets about taking Tesla private that were judged to have violated SEC rules, and then for violating his agreement with the SEC to refrain from tweeting about Tesla without pre-approval.

Moreover, Tesla continues to stay on the knife’s edge between making and losing money. Many companies supported by venture capital haemorrhage money — think Uber and Lyft — especially in light of Lyft’s recent IPO. A year ago, in Q1 2018, Tesla was losing money to the tune of USD 785 Million. Tesla is only profitable intermittently, with its best lifetime performance in the back-to-back quarters Q3 and Q4 of 2018.

Despite its inadequacies, Tesla has the money and resources to absorb the punch of its Q1 earnings report. To investors and prospective customers, however, it may have a longer shadow.