Tesla is plunging, but it's not why you think

Despite beating Wall Street's earnings expectations, shares of Tesla are down sharply over growth spending concerns.

By TheStreet.com Staff May 8, 2014 11:08AM

Elon Musk, co-founder and CEO of Tesla © Jerry Lampen/EPA/CorbisBy Chris Ciaccia, TheStreet

Tesla Motors (TSLA) may have beaten in its first-quarter earnings and given investors an update on the Gigafactory, but Wall Street has other issues on its mind -- namely the fact it's going to be free cash flow negative this year as the company spends to grow. The Street on MSN Money

When the company reported first-quarter earnings Wednesday, Tesla CEO Elon Musk noted that the company is going to invest between $650 million and $850 million this year, as the company builds out its Gigafactory, as well as continuing to build out its service centers, Supercharger network and the continued design of the Model X, due out later this year.

"We still plan to invest $650-850 million for the year in capital expenditures for increased production capacity, growth in our store, service center and Supercharger footprints, Model X and S development and start of Gigafactory construction," Musk said in the shareholder letter. As a result, he expects Tesla to be cash flow negative for 2014, before "considering the equity required for leasing."

For the first-quarter, Tesla earned 12 cents a share on a non-GAAP basis, generating $713 million in revenue, as it delivered 6,457 Model S units. The company produced 7,535 units for the quarter, but the rest of them are in transit to Europe and Asia, where Musk noted the company is seeing exceptional demand. "I really don't think we have any kind of demand challenge in China," Musk said on the conference call. "I was blown away by the level of interest and enthusiasm in China from people at all levels, people in government, industry and consumers. I'm really optimistic at how things will go there."

Karl Brauer, senior analyst for Kelley Blue Book, noted Tesla's story is more about where it can go in the future, as opposed to what it's doing now. "The fascinating thing about Tesla is how its earnings remain a small part of what drives interest in the automaker," Brauer said in emailed statements. "Its latest earnings report shows continued progress, and China could be a huge cash cow for the company if Tesla can fully leverage that market. But I think investors are waiting to see substantial progress on the Model X crossover and proposed battery factory."

Analysts surveyed by Thomson Reuters were expecting Tesla to earn 10 cents a share on $699.09 million in revenue.

Tesla is still constrained by battery cell supply, and Musk noted that would continue to be the case for the second quarter, but improve in the third quarter thanks to a deal the company signed with Panasonic late last year.

Concerning the Gigafactory, Musk noted that Panasonic had signed a letter of intent with Tesla to be a partner for the massive factory, and that there's a joint working team between the two companies already working out some initial details. Musk said Tesla was "highly confident" of getting the 30 percent cost cut in kilowatt hours for the battery, in order to achieve the $30,000-$40,000 initial price point for the Gen III car.

Musk did go on to say that California, which was not part of the initial four states listed for the Gigafactory (Arizona, Nevada, New Mexico and Texas), was back in the running for the Gigafactory, but that it was improbable the state would get the plant, due to difficult rules and regulations surrounding building permits and greenfield sites. Musk also confirmed that Tesla was building two Gigafactories simultaneously in two different states to allow for any problems and regulations. CFO Deepak Ahuja noted it's really critical that the first Gigafactory is on time, stating that every one month delay is worse in cost than building two sites at one time.

For the second quarter, Tesla said it expects to deliver about 7,500 Model S units, as the company looks to surpass 35,000 Model S deliveries for the year. The car manufacturer is looking to produce between 8,500 and 9,000 cars for the quarter, up 13 percent to 19 percent sequentially.

With regards to the Model X, that's accounting for the majority of the R&D spending, as the company gears up for initial production of the vehicle in the fourth quarter, with deliveries in the second quarter of 2015. Musk stated Tesla was late on the Model X relative to the company's earlier forecast, as the Model S had to be perfected and brought to international markets. "We're in pretty good shape on the S front, so there's heavy focus on the X front and making sure it's a phenomenal product."

Musk went on to say that the production ramp for the Model X will be much greater than it was for the Model S.

After the conference call, analysts were cautiously optimistic on the future of the company, with several lowering price targets because of the enormous amount of investment this year as it ramps up spending.

More from TheStreet

May 8, 2014 11:35AM
You have to love this guy.  So many CEO's would not have the guts to make such outlandish statements about their  investments knowing their daily share price would suffer.  I swear 95% of CEO's spend more time evaluating effects on share price than taking care of their day to day week to week business.  They of course figure this is what investors want and demand and in our twenty minute reality America lives in they are probably correct.  A tip of the hat to Mr. Musk for being more of an American entrepreneur that his natural born peers.
May 8, 2014 12:52PM

interesting.. today 5 stocks recommended by a wall street blog (prob yesterday) one of the 5 was

TESLA. terrific huh. was the guy a hedge fund manager or what?

i really, really wouldn't even know who to trust when reading an article any more!


May 8, 2014 12:25PM
I guess they must not have gotten their $50 Million in Carbon Credits from the State of California....Oh, their earnings estimates were knocked down several times before they were finally reported; by that time they actually exceeded the newly estimated number.  Gotta love MSNBC....
May 8, 2014 4:02PM
We call is as we see it folks and often as its happening...Warned you that at 1310 hrs manipulators started to take over the floor and do their thing and what was a triple digit lead on the Dow went negative in no time, now we are fighting just to stay on the green on the S&P, the Nasdaq is done, it has been a target for these scumbags all month....Like we always tell you, we could be up 100, 200, 300 points, its irrelevant, when manipulators take over on and off the floor everything reverses....These cheating crooks steal their money by dropping markets and that is exactly what they just did and always try to do....Oh well, it could always be worse...Lets see what bs they will come up with tomorrow.
May 8, 2014 2:53PM
 For you dividend chasers, a little shop talk outside this blog. FSC at the bottom of its two year trading channel. Pays $.0833 monthly, record date middle of month payable end of month. Yes like all high yielders its come off its highs but not as much as the reits. Trading range $9.00 to $11.00, yield near 11%. Like always do your own research. Stay profitable.
May 8, 2014 2:32PM
I think it's sadly funny how people think that electric cars are "green technology".  Where do you think most of the electricity comes from?  Coal and natural gas.  Also, have you ever looked at the mining operations to get the rare metals needed for the electric cars?  Not exactly green either.  

If people really wanted to go green, we would have been building high-pressure compressed air cars since the middle of the last decade.  But those would actually be cheaper than the current car, and therefore available to the masses.  The "environmentalists" can't have THAT!  Oh, and because a gas going from high pressure to low pressure becomes cooler, a HPCA car would not need an air conditioner either, and since the oil would be used at a lower temperature, it would last 50,000 to 75,000 miles between oil changes.  But let's make some huge strip mines and put up some more power plants and "GO GREEN"!
May 8, 2014 5:07PM
I'll bet that $9500 or $15K selling on line is selling more then light bulbs to the Locals
May 8, 2014 3:32PM
Don't we buy enough from Commie China! I'm not buying a damn car from them now or ever.
May 8, 2014 2:11PM

The Government and others have invested or "funded by Grants" many things over the last 100 years...

If they HAD NOT, many conveniences or other items that have made our lives much better/easier;

Wouldn't be around...

I'm sure there were many detractors, when the Interstate Systems were built in the 50-60s.

One of the more prominent reasons, some are fighting the Sales of Tesla's in their States, are because the way Musk wants to do business, CUTTING OUT the Dealer Associations...

And probably along with that, Repair Garages etc...Not really about Oil...IMO.

Do you really ever calculate how much Energy is used to build the Batteries, used at Charging Stations and replacing or disposing of old batteries....

There within lay  parts of a conundrum...99% of that, is not "green energy" at this time.

(I just picked the percentage figure out of my hat.)

I also feel TESLA is an "overrated vehicle" and so is the Company.

May 8, 2014 1:47PM

" why not stick to posting about things you understand, such as cars, guns, beer and such.."

Well ACTIVE that made my day, have got to remember to use that sometime....

Just didn't include anything about God and Bibles...?

Could be used here every late afternoon probably...Pity those being LED by the Unknowing... 

May 8, 2014 1:34PM

WTF does "ELEKTRISCH"....mean??

If you bothered reading the article, I didn't..!!  You can see it on the car...

May 8, 2014 11:42AM
Tesla has big oil nervous. For those states that do not allow Tesla----------therein lies the connection.
May 8, 2014 11:49AM
LMAO! Just like Obama and our economy! Of course, our Stimulus money, that is now all gone, went into these adventures, along with solar panels and the rest of his green energy failures!
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