1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Holly LaFon
Holly LaFon
Articles (9686)  | Author's Website |

Tesla Bull ‘Throwing in White Towel’ on Company and Downgrades Rating

Research firm calls Tesla's 1st quarter 'one of top debacles we have ever seen' following financial results

April 25, 2019 | About:

Research firm Wedbush withdrew its favorable opinion of Tesla (NASDAQ:TSLA) Thursday morning, the day after the company reported its first-quarter financial results.

“To this point, in our 20 years of covering tech stocks on the Street we view this quarter as one of top debacles we have ever seen while Musk & Co. in an episode out of the Twilight Zone act as if demand and profitability will magically return to the Tesla story,” Wedbush analyst Daniel Ives said in a research note.

As a result, Ives said he was “throwing in the white towel” on the name and downgraded his rating from outperform to neutral, lowering his target price to $275 from $365. Tesla shares closed Friday near a two-year low at $247.63, down 7.97% from their Monday open.

1017855944.png

For the first quarter, Tesla reported a net loss of $667.65 million, compared to a net loss of $784.63 million in the same quarter last year and a net gain of $210.08 million in the fourth quarter. The results included the negative effect of $188 million in non-recurring items.

679363089.png

Although it faced trouble expanding its deliveries into Europe and China during the quarter, Tesla deliveries totaled 62,975 Model 3 vehicles, an increase from 61,394 in the prior quarter. In a letter, Tesla highlighted that the Model 3 was the best-selling premium car in the U.S. for the quarter.

Meanwhile, production of its other offerings, the Model S and Model X, fell sequentially. Tesla produced 14,163 of the models in the first quarter, down from 25,161 in the fourth quarter of 2018. It also delivered fewer vehicles, citing weaker demand due to seasonality, the reduction of a federal tax credit and discontinuation of its 75 kilowatt battery pack, which raised the base price of its Model S and Model X.

Wedbush also called the company’s guidance “aggressive” and criticized its management. For 2019, Tesla reaffirmed its guidance of a 45-65% increase in deliveries to between 360,000 and 400,000 vehicles. If its Shanghai Gigafactory reaches full volume, Tesla said it aimed to produce as many as half a million vehicles for year, compared to 350,000 in 2018.

Tesla’s balance sheet showed $2.2 billion in cash and cash equivalents at the end of the quarter, down by $1.5 billion from the end of 2018. The company attributed the decline to a $920 million convertible bond repayment and a higher number of purchased cars en route to customers at the end of the quarter.

“At this point the writing is on the wall that Tesla will likely have to raise $3 billion+ of capital in the near term to sustain its capex and debt needs given its current profitability path, which is another black cloud over the name with an inexperienced CFO now at the helm,” Ives wrote, referring to Zachary Kirkhorn, 34, who rose to the role in March after about eight years with the company in various finance positions.

Kirkhorn said in a call with analysts Wednesday that the company could return to profitability by the third quarter as it works to improve cost efficiency. Second-quarter profits will continue to be negatively affected by first-quarter pricing adjustments, which pressured margins.

Wedbush also cited Tesla’s interest in robotaxis and insurance products as “distractions” from its larger demand issues. Tesla CEO Elon Musk had made waves at an investor presentation on Monday by promising to create “over a million” robotaxis by the end of 2020.

Another investors voiced support for the company this week. In a first-quarter letter, Baron Funds wrote that despite Tesla’s fluctuations, “our eye remains on the long-term prize: the massive disruptions taking place in the automotive and transportation industries driven by electric, autonomous and shared.”

f8f43da0-67a7-11e9-adf7-61fb0ac7a81f.png

“This quarter, the stock reacted negatively to recent news around challenges shipping Model 3s for the first time to Europe and China and the headwind of lower U.S. tax incentives for EVs,” Baron Opportunity Fund research analyst of software and services, automobiles, Ishay Levin wrote. “Tesla delivered fewer cars than expected during the first quarter. We believe the market’s hyper-focus on quarter-to-quarter deliveries is myopic and misplaced. We believe Tesla is at the forefront of disruptive innovation in the automotive and transportation industries, and will soon be selling millions of EVs globally at attractive margins.

Only one Tesla investor GuruFocus tracks has reported their portfolio for the first quarter. Ken Fisher (Trades, Portfolio) reduced his position by 26.54% to 786 shares, a negligible weighting in his portfolio. Spiros Segalas (Trades, Portfolio) of Harbor Capital Appreciation Fund had the largest position with 1.06% shares as of Jan. 31, followed by Ron Baron (Trades, Portfolio), who had a 0.96% stake as of Dec. 31.

Tesla has a price-book ratio near a two-year low at 9.21 and a price-sales ratio near a 10-year low at 2.13.

Read more here:

Most-Bought European Stocks of Top Investors

5 Worst-Performing Health Insurance Stocks of 2019

Yacktman Focused Fund Adds to Samsung and State Street, Axes Goldman Sachs

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Performances of the stocks mentioned by Holly LaFon


User Generated Screeners


pjmason14Momentum
pascal.van.garsseHigh FCF-M2
kosalmmuse6
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
kosalmmuseNice
kosalmmusehan
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat

{{numOfNotice}}
FEEDBACK