Obama's Bitch Tesla Breaks Records But Doesn't Break Even

[Save America - Ban Democrats]

Tesla Inc.’s earnings calls have lately taken on the trappings of
office going-away parties.

Just before the Q&A portion of Wednesday evening’s second-quarter
call, CEO Elon Musk announced that JB Straubel, the company’s veteran
chief technology officer, would step down to become a senior advisor.
This was at least said up front, as opposed to the by-the-way
announcement of the CFO’s departure at the very end of an earnings
call in January. Still, news that the man second only to Musk in his
identification with Tesla is stepping back now, and after a string of
other departures, is even more jarring. Tesla’s stock, down 11% after
hours already, dipped further on this news.

It was a disconcerting postscript to some disconcerting numbers.

Tesla entered Wednesday evening’s call priced at 109 times 2020 GAAP
earnings. The company’s record number of vehicle deliveries, reported
earlier this month, added fuel to a partial rebound from a stock-price
slide that began in late December. In the bull’s pricing formula, more
metal being moved equals more growth to come, which equals a big
multiple.

The hole in this equation concerns profits.

Tesla met its second-quarter guidance in the sense that its first
quarter net loss of $668 million was almost halved to $389 million
($272 million if you strip out restructuring charges). But the fact
that Tesla delivered 50% more vehicles in the second quarter compared
to the first, yet still lost money, means the problem that spooked
investors back in April remains: Selling a lot more vehicles isn’t
translating into profits.

The problem starts at the top line, because Tesla is selling more
lower-priced Model 3s versus the premium Model S and X vehicles. This
is fine so long as Tesla is selling enough cars and at enough of a
margin to realize a bigger profit overall. But it isn’t.

Focusing only on vehicles sold (rather than leased) and stripping out
the sale of regulatory credits allows me to calculate implied figures
for average revenue (or selling price) per vehicle as well as gross
profit. Tesla reported its highest quarterly net income ever in the
third quarter of 2018 at $343 million. Deliveries in the quarter just
gone were 14% higher, but the shift to lower-priced vehicles is why
the bottom line is very different.

Threeconomics
Tesla's implied average revenue per vehicle is down 23% since 3Q 2018
as cheaper Model 3s account for more sales. Implied gross margin per
vehicle is down 46%


Source: Tesla, Bloomberg Opinion calculations

Note: Automotive sales and gross margin divided by vehicles delivered
less those subject to lease accounting.

Tesla says Model 3s sold for about $50,000 apiece in the second
quarter – which, by my math, implies Models S and X went for about
$73,000 each. That looks low, suggesting Tesla discounted pricing to
get them out the door, especially with the Model 3 presenting a less
luxurious, but newer and cheaper alternative. Indeed, Tesla said in
Wednesday’s announcement it continues to “prioritize inventory
reduction” when it comes to the S and the X. Inventory on the balance
sheet also fell by a hefty $455 million versus the end of March.

This all erodes that vital growth narrative: Revenue in the second
quarter was $6.35 billion, lower than in either of the third or fourth
quarters last year, despite higher vehicle deliveries.

Tesla’s spending also calls the growth story into question. Selling,
general and administrative expenses were the lowest since the same
quarter in 2017, when Tesla delivered only a quarter as many vehicles.
Meanwhile, capital expenditure was less than half of depreciation, and
Tesla cut the annual budget by roughly a fifth. Even so, at about $250
million, Tesla still underspent the implied quarterly run-rate of $407
million, and that’s assuming the low end of the guidance range (the
company cites improved efficiencies and deferrals).

That is not only jarring for a growth stock, it also puts Tesla’s
boast of ending June with just less than $5 billion of cash on the
balance sheet in perspective. Of the $2.8 billion increase versus the
end of March, $2.2 billion relates to Tesla issuing new debt and
equity. The remaining $560 million is more than matched by the $188
million of underspending at the capex line and that $455 million
run-down in inventory.

Tesla points to growth drivers to come, such as the new factory in
China and the Model Y. Even so, there was notable hedging in the
guidance:

Additionally, we expect positive quarterly free cash flow, with
possible temporary exceptions, particularly around the launch and ramp
of new products. We believe our business has grown to the point of
being self-funding. 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.
[Emphasis mine.]

Prior to disclosing Straubel’s new job status, Musk called attention
to Tesla’s cumulative deliveries, characterizing it in typical
language as “the cleanest exponential I’ve ever seen.” He instructed
those listening to “extrapolate that curve.” A pithy and familiar
pitch, yes, but the disconnect between that curve and the bottom line
is ever harder to ignore.

https://www.bloomberg.com/opinion/articles/2019-07-24/tesla-tsla-2q-earnings-breaking-records-not-breaking-even