The day started off okay for Tesla (TSLAWealth Strength IndexAAPL is Extremely Up and trending Up) and its shareholders. The company announced a big loss of $3.35 a share as it burned through $745 million in cash in the first quarter. Revenue climbed 26% to a record $3.4 billion. Both the loss and the revenue number were better than Wall Street had expected.
Wall Street wasn’t exactly thrilled with the cash burn in the quarter. But it might have been willing to look past that number if CEO Elon Musk hadn’t blown up during the conference call.
In the call Musk refused to answer a question about capital expenditures–an important question, you’d think, for a company that could run out of cash this year–calling it “boring” and “boneheaded.” The exact quote from Musk is “Excuse me. Next. Boring, bone-head questions are not cool.”
And he also refused to answer an analyst’s question about how many customers who reserve the company’s new Model 3 actually wound up buying the car. Said Musk, “We’re going to YouTube. Sorry. These questions are so dry. They’re killing me.” Seems an important question to me since April sales were just 3,875 after 3,820 in March.
Musk offered up another one of his “forecasts” saying that Tesla would not have to raise money in 2018 because the company would turn profitable in the third and fourth quarters of 2018. Tesla has had only two profitable quarters since it went public in 2010. Musk said that the Model 3 was on track to see production climb to more than 3,000 vehicles a week soon and to 5,000 vehicles a week two months from now. In April Model 3 production hit 2,270 a week and saw production of more than 2,000 for three straight weeks. The company’s target for production in April was 2,500 cars per week.
So right now analysts and Wall Street in general are angry at Musk and are out to punish him and Tesla. The shares fell 5.55% in trading during the regular session today.
But in the longer run, here’s what will count: The company finished 2017 with $3.4 billion in cash. During 2017 free cash flow was a negative $4.1 billion. The company only finished 2017 with that $3.4 billion in cash because the company sold $7.1 billion in debt during the period.
As Musk said during the conference call, investors who don’t like volatility shouldn’t own Tesla. 2018 is likely to be a volatile battle between Musk’s predictions of production levels and profits for the second half of the year–and Wall Street’s projections that the company will run out of cash and need to come back to the capital markets for more.
Full disclosure: I am neither long nor short Tesla in any of my personal portfolios.