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.
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.
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.
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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!
you're right - that's not what i thought. so if you bring in valuation concerns based on future earnings and the arrival of the inevitable competition from germany and korea and japan and the U.S. .... well then you will see some real "plummet."
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.
" 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...
WTF does "ELEKTRISCH"....mean??
If you bothered reading the article, I didn't..!! You can see it on the car...
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4 analysts downgrade the stock the day after a disappointing quarterly report.
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