Why Tesla’s Big Q1 Loss Doesn’t Matter

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Tesla Inc. (NASDAQ: TSLA) reported fourth-quarter and fiscal-year 2018 earnings after markets closed on Wednesday. For the quarter, the electric car maker posted adjusted diluted earnings per share (EPS) of $2.90 on revenues of $4.54 billion. In the same period a year ago, the company reported a loss per share of $3.35 on revenues of $3.41 billion. First-quarter results also compare to consensus estimates calling for a net loss per share of $0.69 and $5.33 billion in revenues.

Earlier this month, Tesla said it had delivered 63,000 vehicles in the first quarter, compared to a consensus expectation of 75,000 vehicles. The shortfall was particularly great for the Model S and Model X, which combined for deliveries of 12,000 units against expectations for 20,000. The company built 77,000 vehicles in the first quarter, but logistical challenges bedeviled shipments.

In the letter to shareholders, Tesla CEO Elon Musk and CFO Zachary Kirkhorn reiterated the company’s forecast for 360,000 to 400,000 deliveries this year. They even noted that if the Shanghai Gigafactory can reach volume production early in the 2019 fourth quarter, full-year production could reach more than 500,000 vehicles in the 12-month period through June of 2020.

Musk and Kirkhorn also said that they expect to be profitable in the third quarter of this year and that they expect to “significantly reduce” the $702 million first-quarter loss in the second quarter. Free cash flow is expected to be positive in each of the three remaining quarters of 2019.

Tesla reported $2.2 billion in available cash after repaying $920 million in convertible notes. Analysts Gene Munster and Will Thompson at Loup Ventures noted that the company hinted strongly that it will raise additional cash in the coming months. In their opinion, Tesla should raise between $2 billion and $4 billion in order to “appropriately de-risk the business.” While near-term prospects are challenging, over the longer term, the global switch to electric vehicles will pull Tesla along with it.

As for Tesla’s expectations for 2019 deliveries, Munster and Thompson say they anticipate 341,000 deliveries this year, rising to 435,000 in 2020.

Shares traded down about 1.2% at $255.49, after closing at $258.66, in a 52-week range of $244.59 to $387.46. The stock’s 12-month consensus price target before the earnings report was $311.68.

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