“It’s just one quarter; this is a multiyear story,” said David Whiston, auto equity Morningstar analyst who has a fair value of $235 on the stock. “I am more optimistic than some, but very cognizant of all the risks. With all the hype, not enough attention has been paid to balance-sheet risk. Elon is the company in a sense. To investors.”
“They say a lot of things, but ultimately they have to deliver,” he added. “[Musk] can talk about 5,000 or 6,000 cars. … I don’t care, just make them.”
Tesla last announced in early April that it was making over 2,000 Model 3s a week, and planned to reach 5,000 per week in the second quarter. In the last week of April, it hit 2,270 Model 3s, Tesla announced in its quarterly report on Wednesday.
“Earnings is what it is,” Whiston said. “Pretty much the same thing every quarter, and it isn’t so much one quarter that matters. … Even if later in the year Elon’s projections turn out to be true, they are not done with the portfolio, the semi truck and Model Y, and all that takes a lot of money.”
As the market becomes more focused on the cash crunch, Musk and Ahuja continue to talk about investing. One comment from Musk on the last earnings call summed up the push and pull between profitability and investment.
“We could be positive cash flow, like I think pretty significant positive cash flow probably in like third quarter, which is like maybe four, five months from now.” But Musk quickly followed that by saying, “But we think it makes sense to invest in Model Y.”
Ahuja then added that investing in the future growth of Tesla’s energy products was also important. “Makes good business case, good business sense to invest,” he said.
In its earnings report, Tesla said it expects total capex will decrease from less than $3.4 billion to less than $3 billion, and it is expecting positive cash flow, and net income, in both the third and fourth quarters of this year. Musk and Ahuja wrote in the quarterly letter to investors that the capex decrease would be driven by “focusing on the critical near-term needs that benefit us primarily in the next couple of years.”
CFRA’s Levy noted that profitable quarters in the past have been achieved by Tesla, but have not been sustainable, though they have preceded an additional capital raise. That’s a cash-raising move that analysts believe would lessen the tail risk. “Right now, it’s prudent for them to do a capital raise, an equity raise,” Levy said.
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